EUR/USD is higher on Monday, continuing the gains which marked the Friday session. Currently, the pair is trading at 1.24012, up 0.47% on the day. There are no data releases on the schedule. We’ll hear from the head of the German central bank, Jens Weidmann, as well as from three FOMC members – William Dudley, Loretta Mester, Randal Quarles. On Tuesday, the key event of the day is US CB Consumer Confidence.
US durable goods reports ended the week on a high note, but the dollar still lost ground on Friday. Core Durable Goods Orders rebounded with a strong gain of 1.2%, crushing the estimate of 0.5%. This marked the strongest gain since July 2016. Durable Goods Orders jumped to an 8-month high, with a gain of 3.1%. The reading easily beat the forecast of 1.6%. The US manufacturing sector continues to expand at an impressive clip, a result of stronger global growth and a cheaper US dollar, which makes US goods less expensive for foreign buyers.
The business sector continues to have strong confidence in the German economy, but there is concern about possible headwinds due to recent tariffs imposed by the Trump administration. The German Ifo Business Climate report dipped to 114.7 in March, which matched the forecast. However, this marked a second straight drop, and was the lowest reading in 11 months. The report attributed lower business morale to concerns that tariffs could hurt transatlantic trade, as well as the negative impact of a stronger euro. On the bright side, tax reform in the US and the economic rebound in the eurozone have increased the demand for German goods and services.
Are we headed for a global trade war? There are some worrying signs, as US President Trump slapped 25% tariffs on up to $60 billion worth of Chinese imports on Thursday. Trump said that the tariffs are needed to address the massive trade deficit with China, which stands at $375 billion. For its part, China wasted no time in threatening to retaliate, saying it was planning to impose tariffs on 128 US products, which would amount to $3 billion in imports. The tariffs directed against China come on the heels of tariffs on steel imports coming into the US, although the US has promised exemptions to the EU and other trading partners. There is serious concern that these moves could ignite a global trade war, and if the US tariffs remain in place, as downturn in the Chinese economy could spread and possibly a global recession.
