US-EU Trade Tensions Unlikely to Ease Amid Growing Trade Surplus

Euro News and Talking Points

– EUR/USD and DAX see muted reaction despite growing Eurozone trade surplus

– US-EU trade tensions unlikely to ease given rising trade surplus against the US

A muted reaction seen in EURUSD and the DAX after the Eurozone’s trade surplus for February grew to €18.9bln from €16.1bln a year earlier. This was due to the 3% rise in exports, while imports increased by 1.5%. Amid the backdrop of trade wars, the Eurozone’s trade surplus with the US grew to €10.989bln from €10.337bln, which is unlikely to ease US-EU trade tensions. As a reminder, the EU’s exemption from the steel and aluminum tariffs expire at the end of the month.

Eurozone Fights With Strong Euro

Recent industrial production figures have been disappointing, confirming the narrative that Euro-Area growth is cooling. Germany’s trade surplus seasonally adjusted fell to €19.2bln from €21.3bln in the previous month, which have largely been due to 3.2% decline in exports (largest fall since 2015) amid the strengthening of the Euro.

ECB Concerned Over Economic Outlook

In the most recent ECB meeting minutes, members raised concerns over FX risks and the potential dampening effect the rising Euro could have on inflation and growth. Following the recent soft data in the Eurozone this could potentially lead to downgraded growth forecasts when ECB members next provide their latest outlook in June. Yesterday’s dovish minutes pushed the Euro lower across the board, with EURGBP falling to its lowest level since June 2017, having taken out the previous base area of 0.8700-0.8680 and now looks to have formed a new range low at 0.8650. Potential for a move towards 0.8500 in the medium term.


Chart by IG

— Written by Justin McQueen, Market Analyst

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