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EUR/USD Advances as Trump Secures Concessions from EU to Avoid Trade War

EUR/USD Advances as Trump Secures Concessions from EU to Avoid Trade War

Peter Hanks, Strategist


Talking Points:

  • The meeting between Juncker and Trump bucked the trend of recent gridlocked trade negotiations
  • The announcement of concessions sent the Euro higher versus the dollar
  • Europe has agreed to lower some industrial tariffs while increasing soybean and LNG purchases
  • EU and US will look to work together and reform the WTO

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The threat of a burgeoning trade war between the United States and European Union seems to have diminished Wednesday. US President Donald Trump met with European Commission President Jean-Claude Juncker to talk trade in Washington DC and the meeting seems to have resulted in concessions from the bloc and relief from relentless US pressure. The announcement initially sent the euro higher versus the dollar and US equities rallied in afternoon trading with the initial leaks of progress. The deal comes as a surprise, contrasting reports from earlier in the day suggesting Juncker had no intention of securing a deal at the meeting.

Meeting in the Rose Garden of the White House, the two officials relayed their discussion to the press, confirming earlier leaked reports suggesting headway was being made. According to the proposed terms, the European Union will lower industrial tariffs, look to increase soybean and liquefied natural gas imports from the US, and the vague commitment to begin dialogue on reducing tariffs and “slashing costs dramatically.”

President Trump expressed the importance of a strong relationship between the trading partners and went on to say the US and the EU will work together to reform the WTO. The pair will also work to resolve the steel and aluminum tariffs facing the EU – though they currently remain in place – and want to move towards “zero tariffs” on non-auto industrial goods. The timeline for the concessions is not immediately clear, but Mr. Juncker said the counterparts will “resist further tariffs as long as talks are ongoing”. This is perhaps the EU’s biggest take away from this meeting, but it is clear that negotiations to a truly satisfying outcome from both sides will take some time.

Articles Relating to the Ongoing Trade Wars

1. US China Trade War & A Brief History of Trade Wars - 1900 Until Present - By DailyFX Team

2. Yuan Eyes on PBOC for Guidance; Stocks Outlook Remains Cautious Amid Trade War - By Renee Mu, Currency Analyst

3. Auto Tariffs - and Retaliations - Grow More Likely as Trade Wars Rage On - By Peter Hanks, DailyFX Research

4. Fed Monetary Policy Report Expresses Worry over Trade Wars - By Peter Hanks, DailyFX Research

5. What is the Trump Administration's Strategy in its China Trade War? - By John Kicklighter, Chief Currency Strategist

The impact on equities and the relevant currencies was notable. The EUR/USD pair jumped on reports of the concessions and maintained buoyancy through the conference. Eventually, the pair rested near 1.1735 after climbing from 1.6750 before the news. Despite Wednesday’s rally, the pair remains down nearly 2.35% for the year.

EUR/USD, 15-Minute Chart: July 25th

EUR/USD, Daily Chart: Year-to-Date

Similarly, US equities spiked in the final minutes of trading with the S&P 500 climbing nearly 1% before negative earnings weighed on the index. The NASDAQ and Dow Jones Industrial Average also saw similar performances, climbing on the news and eventually falling on negative earnings from companies like Facebook and Ford.

S&P 500, 15-Minute Chart: July 25th

To stay up to date on important events that could move markets, consult our Economic Calendar.

--Written by Peter Hanks, DailyFX Research

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.