FX.co ★ Different reasons but the same result: the euro and the pound are aimed at further reduction

The US-China trade war remains a major instability factor for world markets. Despite the fact that the trades were mainly held in the green zone on Tuesday, there is no hope for a positive outcome of the confrontation. As China introduced retaliation against unilateral actions by the United States, it demonstrates their determination to uphold its interests on the assumption that the fast-growing Chinese market of more than 1 billion people is more capacious than the US. Also, sacrifice strategic goals in an attempt to maintain access to American markets is short-sighted.

The United States is preparing to impose a new rate of 25% on the of China's exports and the United States Trade Representative, Lightizer, has already published a corresponding report. The mechanism was launched and public hearings will begin on June 17th.

Rising risks continue to limit the demand for risky assets while the gold, the dollar and the Japanese yen will benefit.

EUR / USD pair

The indicator of economic sentiment for Germany fell by 5.2 p in May, dropping to negative zone to -2.1 p. The decline in the indicator indicates that financial market experts continue to expect moderate economic growth in the country over the next 6 months. Meanwhile, further deterioration is likely given the fact that the trade war between the United States and China has not been taken into account in the survey, which casts doubt on stability German exports.

In the eurozone, the similar index also looks weak and the indicator of economic sentiment is -1.6%. The current situation has improved by 6.2 pp, but it is still in the negative zone at the level of -7.0p.

The weak economic outlook for the eurozone is also reflected in Eurostat data. Industrial production fell for the second month in a row as it decreased by 0.3% in March and a decrease of 0.6% on an annualized basis but for a year and a half there has been no positive trend.

Today, preliminary data on the GDP of the eurozone countries will be published, and two representatives of the ECB, Coeur and Praet, are expected to speak at once. The activity of officials is quite high this week. On Thursday, there will be 4 statements by Draghi's deputies at once, including the head of the Bundesbank Weidmann, who reasonably expects to assume the position of head of the ECB after the end of the mandate of Mario Draghi.

On Friday, inflation data will be published and before the publication of the euro, it will look uncertain. There are no reasons for resuming a bullish trend, as weak macroeconomic data is combined with increased uncertainty about the trade war and the approach of the start of parliamentary elections, which can change the political configuration in Europe. On May 18, Trump must decide on the possibility of introducing tariffs on European cars, which is another risk factor for the European economy.

The EUR/USD pair tends to the zone of 1.1165 / 73, where the issue of increasing downward pressure or returning to current levels will be addressed.

GBPUSD

The unemployment rate in the UK fell to 3.8% in January-March versus 3.9% a month earlier and this is the lowest figure since 1974.

The employment situation looks confidently stable, but reaching a record level did not help the pound trading on Tuesday. The reason for this is a noticeable decrease in the average wage, taking into account bonuses from 3.5% to 3.2%, which is a threat to the stability of consumer demand and is capable of questioning inflation forecasts.

Recall that the Bank of England published a quarterly report on inflation at the beginning of May, which he substantiated his forecast for a rise in prices by 2.1% y/y with the expectation that in April inflation would increase due to energy carriers and retail trade. Reducing employee incomes can have the opposite effect and calls into question price increases in the near future, and hence, the Bank of England rate strategy.

Thus, the pound received a negative impulse falling to 1.29, which immediately won back. The likelihood that the downward movement will continue and remains high. The next is support 1.2864 and fixing below will open the way to 1.2772.