Why is EURUSD not Down More?

Boris Schlossberg BKTraders and Prop Traders Edge

Market Drivers July 2, 2018
Global equities sell off weigh on risk
UK PMI beats
Nikkei -2.21% Dax -0.54%
Oil $73/bbl
Gold $1248/oz.
Bitcoin $6300

Europe and Asia:
GBP UK PMI Manufcaturng 54.4 vs. 54

North America:
USD ISM Manufacturing 8:30

Equity markets were lower across the world putting pressure on risk FX at the start of week’s trade as dollar rose against all of this trading partners on concerns of a further escalation of protectionist policies.

Media reports over the weekend suggested that Trump is considering removing US from the WTO treaty, which has been the cornerstone of global trade rulemaking and has generally served to curb protectionist impulses through its supra-national authority. An exit from WTO would remove any final constraints on the Trump administration to enact protectionist policy as it sees fit and could have a far greater impact on global trade that the current set of limited tariffs that Trump announced.

The market is particularly concerned about any fresh restriction on automobile sectors which is one of the most integrated and most trade-sensitive sectors in the world. Traders are especially worried about the European car manufacturers who are some of the biggest exporters in the world.

In addition to the economic woes, the euro was also under attack on the political front as Angela Merkel’s coalition government appears divided over the migrant issue. The partners are scheduled to meet later today to discuss the impasse, but there appears to be little will to bring down Frau Merkel’s government especially at such a vulnerable time. If Merkel’s government were to fall, just at Trump administration were to increase protectionist policies against the EU, Germany could sink into a recession dragging the rest of the continent with it and while that certainly would be Vladimir Putin’s greatest wish, we think that German politicians may be smart enough to recognize the risk.

Perhaps that’s why despite a raft of negative news the selloff in the EURUSD has been relatively mild with the pair down to 1.1637 as it continues to hold ground above the 1.1500 support. Indeed that level will be the key line this week and should the pair break below that figure it would signal much deeper problems in the region.

Author

Boris Schlossberg

BKTraders and Prop Traders Edge

Boris Schlossberg was key speaker at the FXstreet.com International Traders Conferences 2010. Mr. Boris Schlossberg is a leading foreign exchange expert with more than 20 years of financial market experience.

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