Europe Braces for Two-Front Trade War

Summary:

With Trump winning the US election, the potential for him to impose tariffs on the EU, combined with the ongoing EU-China tariff conflict, could lead Europe into a two-front trade war, placing downward pressure on the euro.

SELL EURUSD

Close Time

CLOSED

1.07565

Entry Price

1.00700

1.09500

1.16091 +0.00430 +0.37%

128.1

Pips

Profit

1.00700

1.06284

Exit Price

1.07565

Entry Price

1.09500

Fundamentals

EURUSD plunged 1.84% yesterday as Donald Trump's probability of winning the US election increased.

The primary reason behind the sharp drop in the euro is Trump's campaign stance, which advocates for higher import tariffs. Trump has vowed to impose tariffs of 10% to 20% on goods imported from US allies, including the EU, and specifically targeted European automakers, accusing them of flooding the US market. If Trump enacts these policies upon taking office, the eurozone economy may be significantly impacted.

Additionally, the EU-China trade war remains tense. If the EU continues its protectionist stance without altering its trade policies toward China, the trade dispute may persist or even escalate. China could retaliate further based on EU actions, potentially exacerbating the eurozone's economic struggles.

In summary, with the ongoing EU-China trade war as the backdrop, the potential for US-EU tariff impositions under Trump's administration would leave Europe facing a dual trade war, further weakening its already fragile economy. This could lead to sustained euro depreciation, with EURUSD likely to continue its decline.

Technical Analysis

From a broader perspective, EURUSD remains below its monthly downtrend line, and the daily uptrend line was decisively broken during yesterday's sell-off. This suggests the pair may extend its monthly downtrend and re-test prior lows.

In the daily chart, EURUSD breached the 1.0780 support level and the ascending trendline, signaling a strong bearish sentiment. These developments have opened further downside potential, with the first target being the critical 1.0000 psychological level.

Currently, the relative strength index (RSI) indicates the pair is in oversold territory, and a short-term rebound is possible. However, it's recommended to wait for the rebound to end and focus on selling at higher levels.

Trading Recommendations

Trading Direction: Sell

Entry Price: 1.0770

Target Price: 1.0070

Stop Loss: 1.0950

Valid Until: Nov 21, 2024 15:00:00

Support: 1.0712, 1.0681, 1.0600

Resistance: 1.0780, 1.0936, 1.1000

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