The week in currency markets started with news of a US-EU trade deal that clearly benefits the US. This has strengthened the , pushing the pair lower.
There is also ongoing focus on the . President Donald Trump continues to criticize Fed Chair Jerome Powell, trying at times to ease pressure and at other times to stir tensions. However, no rate cuts are expected at the upcoming Fed meeting. Markets suggest the first possible cut could come in September, with a second one likely by the end of the year.
Is Russia Becoming a New Front in the Trade War?
The recent signing of several trade deals with countries like Japan, the EU, and the Philippines shows that the US has made real progress in easing the ongoing tariff war. But that does not mean long-term stability is in sight.
President Donald Trump has warned that he may shorten the timeline for Moscow to strike a deal with Ukraine. If there is no progress, the US could introduce secondary tariffs on countries that continue to buy Russian oil. These tariffs could go as high as 100% and may target major importers like India, China, and Brazil.
This issue is also being discussed at a meeting between US and Chinese officials in Stockholm, which began yesterday. The talks are seen as a lead-up to a possible Trump-Xi meeting.
India may face the toughest choice. It relies heavily on Russian oil but also values its growing partnership with the US. For now, much depends on how Vladimir Putin and his diplomats respond. They say they support peace talks but are unlikely to give in to US pressure, even with the threat of more tariffs.
Cracks Emerge Inside the Fed
It is uncommon for members of the Federal Reserve Board to go against the Chairman’s position. However, reports suggest that Governor Christopher Waller and Vice Chair Michelle Bowman may vote in favor of a rate cut. This would reflect the views they have been consistently expressing in recent months.
If they do vote this way, it would be the first time in about 30 years that two board members have openly disagreed with the Chairman. It would also signal growing resistance to Jerome Powell’s leadership.
At the same time, we are expected to learn who the next President will be on the 25th or 26th. Kevin Hassett, head of the White House economic advisors, is currently seen as the leading candidate.
EUR/USD Hit by Strong Bearish Momentum
The information regarding the aforementioned trade agreement led to the formation of a dynamic supply momentum, which defines the southern direction as currently in force. The next target for sellers seems to be the support area of 1.1450, which means about 100 pips of free space.
If the Fed meeting on Wednesday does not bring a dovish surprise, we could see a stronger rebound. A clear break above the local resistance at 1.17 would be the first sign that the downward trend may be reversing.
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