08:56, 27 September

Settles Above 1.17 as ECB Releases Trade Study

In the last week, the EURUSD has settled in a narrow range just above the key 1.17 level after enjoying a solid two weeks which saw it surge higher from lows near 1.15 up to the key 1.17 level and beyond. The 1.17 did pose significant resistance as expected however the EURUSD was able to move through this level. In the second half of August, the EURUSD rallied strongly as it recovered from a 12 month low at 1.13. The 1.15 level had done a solid job of supporting the currency pair in the last few months, so it is equally significant that it has been able to rally higher.

For the last five months the 1.17 level has become key as the EURUSD has often responded to it and in most cases, it has pushed the currency pair lower. This same level may provide some support should the EURUSD ease a little from its current trading levels. In early June the EURUSD rallied well and moved back above 1.18 before it experienced a sharp drop down to a near 12 month low just above 1.15. The 1.17 level has been significant previously providing a measure of support late last year, so it should come as no surprise that it has provided some resistance to the EURUSD and is now an area of interest.

Throughout May, the EURUSD was sold off strongly forcing it down through the well-established support level at 1.22 and then 1.17 down to close to one year low near 1.15. Since the middle of last year, the 1.17 level had propped up the EURUSD several times. Despite being some distance away, the 1.22 level now may provide some measure of resistance and EURUSD buyers around 1.22 will be keen to offload their long positions should the EURUSD return to close to this level.

The European Central Bank (ECB) has released a study they conducted showing the possible effects on ongoing trade wars. The simulation released by the ECB simulated a 10% tariff on all imports and an equivalent retaliation from other countries. The report suggested that the United States would have the most to lose if it started a trade war with other countries, while China would be better off after retaliating. Specifically, a global tariff exchange could boost China’s $12 trillion economies and hurt the U.S. expansion.Further, it suggested the United States would bear the brunt of diminished trade and of damage to consumer and investor confidence. The study said, “Estimation results suggest that the United States’ net export position would deteriorate substantially. In this model, U.S. firms also invest less and hire fewer workers, which amplifies the negative effect.”At this stage, The United States has imposed tariffs on $200 billion of Chinese goods and China has retaliated with tariffs on $60 billion of U.S. goods.US President Trump has also imposed tariffs on steel aluminium from Europe and threatened duties on European cars.