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EUR/USD extends upside as investors see trade war restricted between US and China.

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milkahnjiru12
  • EUR/USD rises above 1.0400 as the risk-premium of the US Dollar eases amid diminishing fears of a global trade war.
  • The ECB is expected to continue reducing interest rates amid confidence that the disinflation trend towards the 2% target is intact.
  • Investors await the US ADP Employment Change and the ISM Services PMI for January. 

EUR/USD advances above 1.0400 in Wednesday’s European session. The major currency pair gains as the US Dollar (USD) extends its losing streak for the third trading day. 

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, declines to near 107.50 as it loses some risk premium, with investors assuming that the scope of a trade war won’t be wider.

Market participants expect the trade war to be mainly between the United States (US) and China as the latter has retaliated against 10% levies by imposing tariffs on various US exports, including farm equipment, some autos, and energy items such as Coal and Liquefied Natural Gas (LNG).

With the rest of the world, investors expect US President Donald Trump will use tariffs as a tool to have a dominant position in negotiating deals with trading partners. President Trump’s postponement of 25% tariffs on Canada and Mexico stemmed from expectations that tariffs are more of a political maneuver. 

Meanwhile, the next trigger for the US Dollar (USD) will be the US Nonfarm Payrolls (NFP) data for January, which will be released on Friday. The official employment data is expected to influence speculation about the Federal Reserve’s (Fed) monetary policy guidance.

In Wednesday’s session, investors will focus on the US ADP Employment Change and the ISM Services Purchasing Managers Index (PMI) data for January.

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