Tobys replies to: EURUSD

Due to the holiday in the US today promises to be a quiet day; in particular as the political dramas in Europe. However, the smouldering trade war suggests that the calm of the financial markets will not last long. Following the conflict between the US and China, attention is now focussing on Europe. According to the latest rumours. With this approach the EU wants to prevent the introduction of tariffs on cars on the part of the US. However, this is only one option for a solution of the conflict. It remains unclear. Among the investors is likely to remain subdued. The US dollar is benefitting from that, but so is the euro, as both currencies are in demand as safe havens. As a result moves in EURUSD have so far been limited, at least compared with other currency pairs.

How things will progress for EURUSD not only depends on how the conflict between the US and the EU develops further. Negative effects on the economy, due to the uncertainty of whether there will be an escalation or not. What matters for the exchange rate is the pronounced difference between the two. Certainly the leading indicators seemed to illustrate a small divergence. Sentiment amongst companies in the euro zone has deteriorated not only in view of the risk of a trade war with the US. Companies in the US on the other hand are more optimistic still, which may be due to the fact that they still benefit from the tailwind offered by the US tax reform at the start of the year. If this were, the US dollar would gain the upper hand. After all, the Fed is already much more hawkish than the ECB and in that case the divide may very well widen further.

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