The G-7 summit became the quintessence of the complex relationship between the White House and the main trade partners of the United States. The face-to-face dialogue did not lead to any detente- on the contrary, the financial world was once again convinced that trade wars would only gain momentum as long as Donald Trump occupied the Oval Office. The US president made it clear that he would not make any concessions or compromises, even allowing him to leave the G7. After leaving the summit ahead of schedule, Trump did not sign and subsequently did not support the final communique, confirming a separate position on key issues under discussion.
This behavior of the American leader says a lot. First of all, the fate of the North American Free Trade Agreement (NAFTA) is "in the risk zone", as Trump and Canadian Prime Minister Trudeau exchanged in harsh statements about each other against each other. One of the White House advisers said that the United States have not yet withdrawn from the agreement, but "the fate of the talks remains unclear." Negotiations have lasted 10 months, so the probability of breaking the deal is now very high. Also, Americans can introduce a tariff for imported cars and spare parts (the main blow will be on Germany), as well as Chinese goods, which relate to the implementation of the program "China 2025".
Thus, Donald Trump can open "three fronts" of the trade war - against Canada, the EU and China. Such prospects may lead to a slowdown in the global economy, so the negative impact of such steps will be felt not only by the US dollar, but also by many other currencies. The fact is that the ECB, the Federal Reserve, and many other central banks of the world's leading countries have repeatedly spoken about the negative consequences of the global trade war in the context of further decisions regarding the prospects for monetary policy. And if the European Central Bank is unlikely to refuse to wind down the stimulus program this year, the Fed may limit itself to only three rounds of rate hike. This scenario is already largely taken into account in current prices, so the indecisiveness of members of the US regulator will exert some pressure on the dollar.
Despite such dismal results of the G7 summit, the US currency is actually ignoring them. The fact is that this week has concentrated many events of a fundamental nature that can cause strong volatility in the foreign exchange market. Traders are slow to make "absentee" conclusions, because on Wednesday the head of the Federal Reserve can personally comment on the results of G7 in the light of possible actions of the regulator. The Fed's June meeting is not a "pass-through" - the marketplaces great hopes on it for further guidance. For the first time since March, Jerome Powell will hold a press conference after the meeting, where one of the topics for discussion will certainly be the US foreign trade policy in the context of influencing the Fed's resolve.
In addition, tomorrow will be published key data on the growth of inflation in the US. The overall forecast is generally good: an increase of 0.2% in monthly terms and + 2.7% in annual terms. The core consumer price index may also show a small increase (0.1% m / m and 2.2% y / y). As we see, inflation should demonstrate a weak, but still positive dynamics. It should be noted that the level of average hourly wages also came in the "green zone" - 0.3%. Therefore, there is a high probability that inflation will be at the forecast level or even slightly exceed the expectations of experts.
However, in this case, the market will probably be careful to buy or sell the dollar. Let me remind you that the text of the published minutes of the last meeting of the Fed "cooled the ardor" of dollar bulls: the regulator's members said that exceeding the inflation target level is not a reason for accelerating rates of rate hikes. Therefore, even with the strong growth of May inflation in the US, buying dollars should be treated with caution.
The market also focused on the upcoming meeting between Donald Trump and Kim Jong-un, which is to be held tomorrow, June 12. This event without exaggeration can be called historical. But, given the wayward character of the participants in the meeting, no one makes hasty conclusions - and this fact also indirectly affects the behavior of traders.
Thus, the key events of this week have eclipsed the results of G7-2018. They will remind themselves of themselves when Trump will start realizing his intentions both about NAFTA, and about "China 2025", and about the EU. But it will be after the historic meeting in Singapore, where trump wants to gain fame as the "world peace dove."
In the context of the foreign exchange market, the situation is aggravated by the fed's June meeting. Depending on how Jerome Powell will place the emphasis, the fate of the dollar in the medium term will depend.
The technical side of the euro/dollar pair fully reflects the uncertainty of the fundamental background. The price is located between the middle and top lines of the Bollinger Bands indicator, however under the Kumo cloud and above the Kijun-sen line. Lack of clear signals suggests that it is necessary to wait and monitor the news background for the pair.
