Trade Wars to Increase Demand for Safe Haven Assets

By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

This week, investors’ undivided attention will be focused on the second wave of trade wars between the U.S. and China. Everything is much more serious this time because import tariffs for Chinese goods were increased while talks were kept alive.

The situation is very complicated. For five whole months and a couple of weeks, American and Chinese policymakers have beem negotiating  trade agreement, which may help large manufactures of both parties continue their operations without any obstructions. Most of the talks were behind closed doors and when parties announced complications or breaks in discussions, no one knew the reason.

At the moment, when the dialogue is obviously stalled, the U.S. decided to put additional pressure on China by raising import tariffs. However, Americans warned Beijing about their intentions a week before, but that did not seem to alter anything as China is highly unlikely to yield to that pressure. China has already announced counter measures, which could lead to a more prolonged stalemate.

For the currency market, a new stage of trade wars is a clear sign that demand for haven assets like the U.S. dollar will increase. However, right now the greenback is under pressure amid declining Treasury yields.

In the H4 chart, EURUSD has broken 1.1212 again; right now, it is trading to expand the range towards 1.1255. Possibly, the pair may continue the correction with the key target at 1.1313. However, if the price breaks 1.1200 downwards, this scenario won’t be valid. An alternative scenario implies that the instrument may continue trading inside the downtrend to reach 1.1050. From a technical point of view, this alternative decline is confirmed by Stochastic, as its signal line is trading to rebound from 50 to the upside.

As we can see in the H1 chart, EURUSD has broken 1.1212 upwards and may continue this rising wave towards 1.1255. After that, the instrument may return to 1.1212 and then start another growth to reach 1.1313. From the technical point of view, this scenario is confirmed by MACD, as its signal line is trading above 0. However, this scenario will be no longer valid after the pair breaks 1.1200 downwards. According to another scenario, the downtrend may continue to reach 1.1050.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Having majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.