This week will be truly intense. We have a perfect storm of potential Trade War escalation, Election outcomes and Central Bank meetings.
On Saturday, Trump threatened European automakers with a tax on imports if the EU does not accept unilateral US tariff decisions. Trump is going against common sense and history. Here is what a Bank of Canada study understood many years ago:
“The trade literature suggests that increases in tariffs by one region against another will benefit the region that imposes
the tariff, but harm that region which is its target—the so-called “beggar-thy-neighbour policy.” As past experience has
shown (particularly the Great Depression), a beggar-thy-neighbour policy eventually escalates into a worldwide tariff war,
and theory suggests that everyone loses in such an outcome.”
While it’s true that Trump has not yet applied any tariffs – and there is a possibility that he takes back his word – businesses will be bracing for impact and further uncertainty is not welcomed by the markets.
In other news, Germany’s SPD backed a grand coalition which gives Merkel the green light for another tenure. The Euro might get some love from this, if the Italian election outcome shows a hung parliament (as expected). The Euro will only come under presure if there is some kind of radical majority of the 5-Star party. Otherwise, the markets will not pay much attention.
This week we will get 4 Central Bank meetings (RBA, BoC, ECB & BoJ), Fedspeak, Non-Fram Payrolls, Canadian Employment, Australian GDP.
As of Friday’s close, we had weakness in Cad vs. strength in Euro and Jpy. Beyond this, the Dax also looks poised for further losses.
About the Author
Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.