EUR/USD has ticked lower the Wednesday session. Currently, the pair is trading at 1.1640, down 0.07% on the day. In economic news, there are no major eurozone events. In the U.S, the focus is on durable goods orders. Core durable goods orders are expected to drop to 0.5%, while durable goods orders is forecast to drop -0.9%, which would mark a second straight decline. On Thursday, EU leaders meet for a two-day summit in Brussels. The U.S will release Final GDP for the first quarter and unemployment claims.
With a lack of major eurozone indicators this week, the markets will have plenty of time to focus on this week’s EU economic summit. High on the agenda will be the escalating trade war, which has been marked by the U.S and China imposing tariffs on each other’s goods. The EU and the U.S have also been involved in a tariff spat, with the EU firing the latest salvo when it slapped tariffs of 25% on $3.3 billion of U.S products. This move was in response to U.S tariffs on EU steel and aluminum imports. With President Trump not showing any intent to blink first, all eyes will be on the summit, as the markets wait for a response (olive branch?) from EU leaders. Another key issue will be Brexit, as the sides remain far apart on a number of issues, with Britain scheduled to leave the club in March 2019. The EU had said that it wanted issues such as the Irish border to be resolved by the June summit, but this won’t happen, and the EU will now have to set another deadline, with time running out. There have been various suggestions for a type of customs union arrangement between Ireland and Northern Ireland, but the May government is split on the issue, much to the frustration of EU leaders. If EU leaders do little more than bash the British over Brexit, the euro could lose more ground to the U.S dollar.
The U.S economy continues to perform well, buoyed by steady expansion and a labor market that is close to capacity. However, the trade war between the U.S and its major partners could be the dark cloud on the horizon. The Federal Reserve now plans to raise rates four times in 2018 (up from three), but a global trade war could force the Fed to revise its forecast back to three hikes. On Tuesday, Atlanta Fed bank president Raphael Bostic said that if the trade war intensified, he would vote against a fourth rate hike, due to downside risks to the economy. Fed Chair Jerome Powell sounded pessimistic about the economic effects of trade tensions at an ECB forum earlier in June, and if other Fed members express concerns, the Fed could delay a fourth hike until 2019.
