EUR / USD
On Friday, the single European currency gained 50 points amid the ongoing discussions of the tariff consequences imposed by US President Donald Trump against the foreign suppliers of steel and aluminum. Accordingly, the decision by the United States should strengthen the dollar, as it will lead to gradual overstocking of this product in Latin America, Europe, Australia, and China. It could also lead to a general decline in world prices for metal products. At the same time, the increase in metal prices within the United States will lead to higher inflation than QE programs, and it will increase its own industrial production in the long run. However, the media recalls a similar situation during the times of Bush Jr. when tariffs on metal were raised by 30% and the dollar fell along with the stock market. But then protectionist measures did not affect the NAFTA and a number of other countries however it was directed to Russia, Ukraine, Brazil, China. Moreover, the decline in markets was temporary. As of this writing, the Republicans have taken into account the previous experience and adopted a broader plan with a specific goal of reforming NAFTA and the entire global trade under the future rewritten program of Pacific partnerships, based on what Trump dreamed of. Despite the outrageous indignation of the European Commission and its desire to introduce an adequate response to this Trump initiative (for example, impose a duty on US goods for a total of $ 3.5 billion), tariff wars (or trade, if you increase the degree of tension) are more beneficial for the dollar, but not for the euro.
The economic data for the European currency turned out to be unfavorable. Retail sales in Germany for January fell by 0.7%, import prices in Germany increased by 0.5% against the expectations of 0.4%. In Spain, the number of unemployed fell by 6.3 thousand versus the expectation of -7.2 thousand. In Italy, the GDP for the fourth quarter was 1.6% YoY against 1.8% YoY in the previous period. The eurozone's producer price index fell in January from 2.2% YoY to 1.5% YoY against the expected decline to 1.6% YoY. In the US, the consumer confidence index from the final assessment of the University of Michigan was 99.7 points against the forecast of 99.4.
The main event of the weekend is the parliamentary elections in Italy, which resulted in an expectedly bad outcome. No bloc succeeded in obtaining a parliamentary majority and now there is a painful period for the formation of a coalition government. But a small sensation still took place, as the party "Five Stars" that participated in the elections without a bloc, received a nominal majority with 32.4% of the vote. In the second place, the center-right bloc of Berlusconi ("Forward, Italy", "League of the North", "The Brothers of Italy") got 32.4%, the center-left led by the Democratic Party got 20.1%. This is one of the worst scenarios for the euro in connection with the Italian elections. The euro was supported by the news about the consent of creating a coalition in Germany, although this issue was resolved long ago, only a formal internal party vote took place.
Today, the January retail sales of the euro area will be issued, with a forecast of 0.3% against -1.1% in December. The projected growth is definitely weak against the backdrop of the previous data. The investor confidence index in the eurozone Sentix for March is expected to decrease from 31.9 to 31.1. The final assessment of the Euro zone's PMI services for February is expected to be unchanged at 56.7 points.
In the US, the business activity index in the non-manufacturing sector last month (ISM Non-Manufacturing PMI) is projected to decrease from 59.9 to 58.9, which may not have a noticeable impact on the background of European political events.
According to forecast, the euro will decline in the range of 1.2210 / 30.
* The presented market analysis is informative and does not constitute a guide to the transaction.
