EUR/USD continues to trade sideways this week. Currently, the pair is trading at 1.2310 up 0.07% on the day. After a quiet start to the week, there are a host of Eurozone indicators. German Retail Sales was unexpectedly soft, with a decline of 0.7%. This reading was well off the estimate of +0.7% and marked the fourth decline in five months. On the manufacturing front, German and eurozone manufacturing PMIs softened in March, although both indicators were within expectations and continued to point to expansion. There are no major US events on the schedule. On Wednesday, the eurozone releases CPI reports and the unemployment rate. The US will publish ADP payrolls and the ISM Non-Manufacturing PMI.
Britain and EU negotiators were all smiles in March, with the announcement that the two sides had reached a transition agreement on Brexit. The agreement will take effect at the end of March 2019, when Britain leaves the European Union. The transition phase will last until December 2020, and is meant to serve as a ‘cushion’ to allow businesses to adjust to Britain’s departure. Broadly speaking, EU rules will still apply to the UK, but Britain will no longer have a seat at the table with regards to EU decision-making. However, according to a report in the Times newspaper on Tuesday, EU regulators have warned UK banks operating on the Continent not to rely on the transition deal, and to prepare for a ‘hard Brexit’, in which the UK would simply depart the EU without any agreement. This position is in stark contrast to that of the Bank of England, which has embraced the transition agreement. The status of financial services in the post-Brexit era remains a key sticking point between the sides, and the stakes are very high, as Paris and Frankfurt are hoping to lure thousands of financial jobs away from the City of London.
The tariff battles have continued this week, with China firing the latest shot. On Monday, China responded to recent US tariffs, imposing its own duties on a range of US goods, including frozen pork and wines. This move is bound to escalate tensions between the two economic giants and has raised fears that a new global trade war could be underway. If the tit-for-tat measures continue, both the US and Chinese economies could suffer, which could lead to a global slowdown. Gold is sensitive to geopolitical crisis, as investors tend to snap up safe-haven assets such as gold during times of uncertainty. If tensions worsen between China and the US, gold prices could continue to move upwards.
