26.07.201813:42 Forex Analysis & Reviews: Europe and the US: Allies again

Long-term review

Europe and the US: Allies again.

On Wednesday, July 25, US President Donald Trump and European Commission President Jean-Claude Juncker agreed to stop the US-EU trade war, a war that has already begun to unfold: Trump previously introduced duties against the supply of steel and aluminum from the EU, the EU introduced retaliatory measures.

The parties agreed: (a) Do not introduce new fees against each other, at least while negotiations are in progress. However, since no terms have been named, in fact this is a truce. The truce can last a long time, but it is possible that Trump can withdraw from the truce unilaterally. (b) the EU and the US agreed to work on reducing tariffs and barriers in mutual trade. (c) The EU promised to purchase soy beans and liquefied natural gas in the US.

Let's pay attention that this is the first positive change in US-Europe relations after a number of conflicts. Trump finished the meeting of the Group of Seven in Canada, "slamming the door", refused to sign the final document, quarreled with the Canadian prime minister and attacked Europe.

Further, Trump attacked Germany at a meeting of NATO countries. Trump blamed Europe for understated defense spending and demanded an immediate increase in spending, threatening the US with a rejection of NATO commitments.

And, finally, the culmination was the plan of Trump to impose a duty of 20-25% on cars from Europe.

And here is an unexpected reconciliation.

What is Trump's tricky initial plan or improvisation?

I think the second is faster. We must understand that Trump entered into the taste of the political game. Trump clearly wants to try to get elected for a second term in 2020, and wants the Republicans not to lose the elections in the interim this fall.

We know that Trump is waging a trade war against China and the matter is moving to the fact that in the case of China such an easy reconciliation as with Europe may not be. At the same time, Trump as if hinting to China. See, we can agree, if, of course, you give in to me, Trump.

If we assume that China will not make concessions and will conduct a tough line of retaliation against US duties, Trump is extremely important allies and this, of course, Europe, a market no smaller than the US market. At the Trump-Juncker meeting, it is likely that the position of Europe in the US-China trade war was discussed. We know that earlier China called on Europe to fight together against Trump's trade duties.

Thus, Trump unexpectedly showed the ability to lead a long-term political game. The US again has a strong ally, Europe, and the US can agree with Europe on the common position in the US-China trade war (and there is another issue of Iran).

The attention of the markets in the short term today switches to the ECB's monetary policy decision, and in August, to the US-China trade war. On August 20, a discussion of a new list of goods from China is planned for the imposition of new duties up to $ 200 billion, with the possibility of increasing the amount to $ 500 billion. That is, the entire volume of US imports from China.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Jozef Kovach,
Analytical expert
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