24.07.201908:58 Forex Analysis & Reviews: EUR / USD: another break-in line between US and EU

The single currency is under pressure amid a whole array of problems on slowing growth of the European economy, the growing likelihood of the implementation of the "tough" Brexit is growing, as well as the likelihood of the application of large-scale measures to mitigate monetary policy on the part of the European Central Bank. Political factors also exert a certain pressure. One of which is the imminent governmental crisis in Italy and the risk of voluntary resignation of Angela Merkel due to her health condition aggravate the general fundamental background for the EUR/USD pair. Now, one more problem has been added to these bunch of problems, which is a high probability of the resumption of a trade war between the EU and the US.

This question has a long enough background. Exactly one year ago on July 2018, Washington and Brussels agreed that they would not introduce additional trade duties and barriers. This agreement was the result of a meeting between Donald Trump and Jean-Claude Juncker, who headed the European Commission. On the eve of this meeting at the White House, the success of the negotiations was unexpected since many factors indicated that the trade war between the US and the EU would be continued.

Trump was unhappy with the ongoing trade policy, voicing his demands in the language of ultimatums. He stated that he was ready to introduce 20 percent duties on cars and auto parts imported from EU countries in the event that the Alliance does not reduce or eliminate trade barriers against US companies. The automobile industry of Germany, France, and Italy was under attack. According to preliminary estimates, the total cost of the indicated duties was 300 billion dollars. In the case of the introduction of US duties, experts say that there will be a "domino effect". The business climate in the eurozone countries will deteriorate significantly, thereby slowing the growth of key indicators and the economy as a whole.

The European Union did not remain in debt and in response, they declared that they were preparing new duties on American goods with a total of 20 billion euros. The German foreign minister has even become personal, stating that Europe "will not allow Trump to speak the language of ultimatums with herself" and was able to respond with symmetrical economic measures. The situation was "in the balance" from the start of the trade war, thanks to the visit of the head of the European Commission to Washington as the financial world escape a new round of trade confrontation.

The trade war was averted last year but the situation escalated again at the beginning of this year. Specialists of the US Department of Commerce prepared and submitted to the American president a report on the import of cars to the States from Europe. After that, Trump had to make the appropriate decision, either to introduce protective duties or not. In turn, Representatives of Brussels again promised to introduce retaliatory duties on the import of American goods that totals to 20 billion euros. Against the background of the escalation of the trade war with China in May of this year, Trump did not dare to open the "second front" of the trade war. He postponed the introduction of import duties on European cars for six months, that is, until the autumn and as this period expires, the parties increasingly recall this problem and voice mutual threats.

Just yesterday, EU Trade Commissioner Cecilia Malmstrom stated that if the United States imposes duties on manufactured cars against EU countries, Brussels will respond with its fees - but not for 20, but for 35 billion euros. Although the commissioner did not announce an indicative list of goods, she noted that additional European duties would be extended to "various and most popular American goods". It is worth recalling that the trade dispute between Brussels and Washington last year. After the US president imposed imports of steel and aluminum in the US at a rate of 25% and 10% on supplies from around the world (including the EU), Brussels imposed a 25 percent tariff (totaling 2.8 billion euros) on such American goods in particular, like whiskey, jeans, and motorcycles. I believe that if Trump really decides to introduce duties on European cars, the European Union will not hesitate to implement the announced threats by applying symmetrical measures.

The EUR/USD traders are faced with concern on the news about the emergence of a new focus of geopolitical tensions, especially on the eve of the July meeting of the ECB. This fact increases the likelihood of aggressive actions to mitigate the parameters of monetary policy by the European regulator, which may be announced tomorrow.

Such a fundamental background allowed the euro/dollar bears to test again the support level of 1.1150, which was the bottom line of the Bollinger Bands indicator on the daily chart. True, dropping to the base of the 11th figure to consolidate lower did not succeed as the market is waiting for tomorrow's verdict of the ECB. However, if today's PMI figures disappoint again (with a rather weak forecast), the bears may again attempt to escape to the base of the 11th price level.