USD analysis and talking points:
– The G7 summit that begins in Canada on Friday is certain to be dominated by fears of a trade war.
– That could weaken the US Dollar further after its declines over the past few sessions.
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And for a longer-term outlook take a look at our Q2 forecast for USD.
USD under pressure from renewed trade war fears
The G7 summit that begins in Canada on Friday could prove to be a difficult hurdle for the US Dollar to jump, focusing attention on renewed fears of a trade war just as the currency is beginning to lose some of its recent strong gains.
The gathering has already been labelled the “G6+1” summit as the US will likely face criticism from all its key allies over President Donald Trump’s trade policies, which are widely regarded as protectionist. While this is nothing new, there is a risk that it will be used as a justification for selling the USD just as it is beginning to weaken.
As the chart below shows, the Euro has been rallying against the Dollar since the end of last month, possibly signaling a trend change.
EURUSD Price Chart, Daily Timeframe (Year to Date)
The G7 finance ministers have already challenged Trump over import tariffs after he imposed them last week on steel and aluminum from Canada, the EU and Mexico, prompting retaliatory action.
USD technicals and sentiment
Meanwhile, from a technical perspective, there is now strong support for EURUSD from the lows at 1.1510 and 1.1518 touched on May 29 and May 30, while there is plenty of room for a retracement of at least some of the pair’s losses since mid-April.
As for sentiment, retail traders remain net-long EURUSD and are continuing to buy into EURUSD weakness. While that might suggest a contrarian signal to sell the pair, it is offset by data showing that traders are now less net-long than they were last week.
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— Written by Martin Essex, Analyst and Editor
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