EUR/USD: The ‘Fentix’ collapses against the backdrop of trade war

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The dollar, reference currency of international trade of the last 80 years, lost its superb in the context of the intense trade war waged by Donald Trump, who announced Wednesday customs surcharge adding to the existing barriers: 34% for China, 20% for the European Union24% for Japan, 26% for India, for example. And this with a 10% floor for all countries of the world, just to forget anyone …

Never since the 1930s have customs barriers have been erected so high. A rhetoric of the fortress was developed by D Trump in the gardens of the White House: “Our country was looted, devastated and ransacked by enemy but also allied nations”, he complained to justify this brutal increase in the taxation of imports. And to create according to him the conditions for an industrial renewal, thanks to the relocation of factories to the United States.

On Sunday, the American secretary in charge of commerce, Howard Lunick undermined the hopes of a potential report of these surcharges scheduled for April 9, dismissing the possibility of a period.

The American president, Donald Trump, told him that he “(wanted) no fall” of the financial markets, while judging that customs duties constituted “a treatment to heal”.

For its part, China announced on Friday that it would in turn impose customs from customs of 34% on American products, in retaliation. Note that the total customs duties, all taxes combined, is now 54% at the entrance to products manufactured in China, in the American territory.

“One of the big unknowns remains Trump’s tolerance for the negative impact of customs duties. How ready to maintain these measures, and what could be the trigger for a turnaround?” Asks Libby Cantrill, Head of Us Public Policy at Pimco. “Contrary to what some people anticipated, it does not seem particularly sensitive to the corrections of the stock markets-a hypothesis which already seemed questionable. However, it is not completely impermeable to the prolonged decreases of the indices, to the pressures of the congress or to the concerns linked to a recession. There is therefore probably a limit to what it is ready to bear to rebalance the economy, but it remains uncertain. From the principle that its risk tolerance is high and that these prices will remain in place for a while. “

“If these measures remain in force if only a few quarters, they will have a significant economic impact: a slowdown in growth that can go as far as recession and upward pressures on inflation. In parallel, Trump could seek to compensate for these effects by accelerating tax cuts-a gesture that would be perceived as a breath of oxygen for the market after a period of marked economic restrictions.”

In this context, a look at employment health in March Friday became an accessory. Note however that, among the main conclusions of the NFP (non -Farm Payrolls) report, the unemployment rate was slightly increased to 4.2% of the active population. The number of job creations in the private sector (excluding agriculture) has emerged at 228,000, very much beyond expectations. However, this is a working basis to see the evolution of American employment health for the coming months.

Note the collapse of the “feelix”, a confidence barometer of investors in the euro zone, in the immediate vicinity of the -20 points. The only German component melts at -36.3 points. In the survey, published this morning, it can be read that American economic expectations have fallen at their lowest level since October 2008, while the price shock has fueled the fears of a global recession. What are also weighing on the Euro, which is more a barometer of the risk of the risk in the financial markets, and explain the early entry into consolidation of the pair of currencies.

At midday on the foreign exchange market, the euro was treated against $ 1,0960 approximately.

Key graphics elements

After the very clear crossing of $,0608 the pair of currencies had entered a long -range lateralization phase, a phase now finished. A bullish outing is in full expression, even though the Bollinger bands go away strongly. Nevertheless in the short term, the early entry into consolidation is the predilection scenario, around the mobile average at 20 days (in dark blue).

Medium term

In view of the key graphic factors that we have mentioned, our opinion is neutral in the medium term on Euro dollar parity (Eurusd).

We will keep this neutral opinion as long as the EURO Dollar parity prices (EURUSD) are positioned between the support at 1,0758 USD and the resistance to USD 1,1012.

Daily data graphics