"Heavy Monday" was left behind: the markets are slowly recovering after yesterday's shakeup, which was provoked by China. At a special meeting, officials of the Chinese regulator tried to bring foreign exporters to their senses: senior NBK officials assured representatives of large business that Beijing would not use the yuan as a weapon in a trade war, and that companies could continue to freely acquire and sell the US currency . By an amazing "coincidence", the USD/CNY rate began to gradually slide down on Tuesday, returning the risk appetite to the foreign exchange market. The soothing rhetoric of the Chinese regulator's members helped the US dollar in slightly regaining its position in almost all the major pairs, except, perhaps, AUD/USD and GBP/USD, but there are different reasons in each case - the pound reacts to the news background regarding Brexit's prospects, and the aussie adjusted after a relatively neutral meeting of the RBA.
But the US currency completely dominates the euro-dollar pair: today, the dollar index rose from a local low of 97.047 to the current value of 97.480 points. The single currency still does not have its own arguments for growth or resistance to the greenback, so the day's events have had a significant impact on EUR/USD. However, it is too early to draw final conclusions.
Against the background of an almost empty economic calendar, traders of the pair react quite sharply to the "reports from the front" of the trade war. It is a coincidence or not, but today the markets tried to calm both sides of the Pacific at the same time. Following a statement by the People's Bank of China, Trump's economic adviser Larry Kudlow also provided a comment. He immediately declared that the introduction of additional duties worth 300 billion was not yet resolved, and everything would depend on China's position in trade negotiations.
It is worth recalling that the next round of negotiations should take place in mid-September, while the US president announced that new duties would be introduced on September 1. With a high degree of probability, it can be assumed that Trump decided only to "raise rates" in the upcoming negotiations - on the eve of the first day of autumn, he will probably deign to delay the introduction of additional tariffs until the completion of the next stage of negotiations. In this case, a peculiar sword of Damocles in the form of 300 billion duties will hang over the Chinese side. The US president has repeatedly done a similar maneuver with the Chinese, and in the first half of this year - with the Mexicans. If Mexico almost backtracked, then China turned out to be a "tough nut": Beijing responded to verbal threats with concrete actions as it "released" the yuan to the level of 7,057 and froze the purchase of American agricultural products.
After the United States and China "showed their teeth" in the trade war, their representatives tried to smooth the corners so as not to repeat August 2015. And although yesterday's stock markets in the US and Asia did not collapse (but nevertheless significantly slumped), the Chinese hastened to extinguish the excessive turbulence that they themselves had provoked. In part, they did it, given the dynamics of defensive instruments and the US dollar. But how long will this "sedative effect" last? In my opinion, the greenback will remain under the background pressure of the US-China conflict, which (hypothetically) entails a further easing of monetary policy by the Fed.
That is why the decline in EUR/USD was limited today. Bulls of the pair were able to touch the lower boundary of the Kumo cloud on the daily chart (1.1260 mark) and plummeted from there. But the mark of 1.1180 (the middle line of the Bollinger Bands indicator on D1, which coincides with the Kijun-sen line), unexpectedly appeared as a support level, in which the pair is currently being traded. Given the inability of EUR/USD bears to go lower, the pair's bulls can seize the initiative and test an important resistance level of 1.1260 once again.
After all, by and large, the overall situation remains tense, despite the fact that the parties have somewhat smoothed out the most acute angles. China promised that it would not continue to weaken the renminbi, but at the same time did not take any "conciliatory" steps toward Washington. In turn, the White House also reacted rather ambiguously to what was happening. On the one hand, Kudlow said that new duties would be introduced following the results of trade negotiations, but on the other hand, he reminded Beijing that if there is no progress in the dialogue, then "tariffs may become even worse." He also said that the United States is in a better and stronger position than China, whose economy is exhausted by the trade war. In other words, the economic adviser "extended a hand of friendship" in a rather peculiar way inherent in the head of the White House.
Thus, the euro-dollar pair retains the potential for further corrective growth. If EUR/USD bulls overcome the 1.1260 mark, the next resistance level will be the price of 1.1301 - at this price point, the upper border of the Kumo cloud on the daily chart coincides with the upper line of the Bollinger Bands indicator.
