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USD Could Fall Further on Trump's Troubles, US-China Trade Worries

USD Could Fall Further on Trump's Troubles, US-China Trade Worries

2018-08-23 08:00:00
Martin Essex, MSTA, Analyst and Editor
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USD price, news and analysis:

  • The US Dollar’s recent weakness looks set to be extended as traders worry about an escalation of the US-China trade wars and allegations of wrongdoing by US President Donald Trump.
  • These factors are likely to outweigh the prospect of higher US interest rates and USD’s safe-haven status.

Our trading forecasts for Q3 have been published; you can find the USD guide here.

USD still under downward pressure

Prospects for the US Dollar look poor near-term as the US-China trade war escalates, with both sides implementing 25% tariffs on $16 billion of each other’s goods despite low-level trade talks in Washington designed to bring the US and China closer together.

In addition, concerns are mounting about criminal probes into US President Donald Trump’s former personal lawyer Michael Cohen and ex-campaign chairman Paul Manafort. Investors are considering whether the setback would hurt his Republican Partys mid-term election prospects and EURUSD has rallied as a result, along with several other currencies and commodities.

EURUSD Price Chart, Daily Timeframe (May 26 – August 23, 2018)

Latest EURUSD price chart.

Chart by IG

On the flipside, US Dollar weakness could be contained by its status as a safe-haven when investors wish to reduce their exposure to risky assets and by continuing expectations that the Federal Reserve will raise US interest rates again next month. The minutes of the last meeting of the rate-setting Federal Open Market Committee made it clear that its members are considering another rate hike soon.

Technical outlook for EURUSD

From a technical perspective, as the chart above shows, USD has rallied this session but the climb in EURUSD that began on August 16 could well resume. If it manages to recover above 1.16 there could well be a climb to just under 1.17, where trendline resistance and the 100-day moving average could impede its progress. Support lies close to 1.15.

Retail trader sentiment data also point to gains in EURUSD, with 57% currently net-short the pair and only 43% net long.

More to read on US-China trade dispute

A brief history of trade wars

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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