Juncker to meet Trump for trade talks — further tariffs in the pipeline
By Vincent-Frédéric Mivelaz
Starting today, European Commission President Jean-Claude Juncker and US President Donald Trump will hold talks in Washington about the current trade conflict between the two blocs.
Background: The US announced tariff measures in early March of 25% and 10% respectively on steel and aluminum for its trading partners, while the EU retaliated by imposing tariffs on popular US goods to a total of USD 3.2 billion. Both sets of sanctions are currently in effect. Following the EU retaliation, Trump threatened to impose further tariffs of 20% on EU-made imported vehicles, a step that would impact auto products valued at USD 58.2 billion. The EU says it is currently drawing up a new list of US products it could potentially tax in retaliation.
Contrary to Trump's complaint about unfair trade practices, it appears that average tariffs between both partners remain historically low at 3%, while the EU goods trade surplus with the US of USD 150 billion (USD 101 billion, including services) confirms that the US economy is in good shape.
Today's trade talks, therefore, remain crucial for both blocs, as further tariff measures are in the pipeline. The odds of both parties finding a common agreement that is deemed to be fair are rather low, however, as EU diplomats are rather less than optimistic. The first Juncker-Trump meeting is expected to remain an initial exchange of primary views.
The EUR/USD sideways price action that started on 23 July 2018 along 1.1690 is being maintained for the time being. We expect the trend to change tomorrow with the ECB's monetary policy decision, which should push the pair to the upside.
AUD tumbles amid weak inflation data
By Arnaud Masset
On Wednesday morning, all G10 currencies extended gains against the US dollar, with the exception of the Australian dollar after inflation data fell short of expectations. The Aussie fell as much as 0.75% against the buck as AUD/USD slid to $0.74. Headline CPI printed at 2.1%y/y in the second quarter versus estimates of 2.2% and 1.9% in the previous one. The trimmed mean measure – a gauge of core inflation – held stable at 1.9%, while the weighted mean CPI eased to 1.9%y/y, down from 2.1% in the first quarter.
Lately, the Aussie has been under heavy selling pressure amid the escalating trade war between the US and China. Indeed, China is Australia's largest trading partner with more than 36% of its exports going to the world's second-largest economy. In view of the ongoing uncertainties, it looks like the Aussie is doomed to trade below the $0.75 support area, as speculators have no reason to develop a bullish view on the currency. Nevertheless, the $0.73 support seems to be holding out (has not been broken since May 2017), which suggests that AUD/USD will most likely continue to tread water between 0.73 and 0.75.