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EUR / USD to reverse? Trump’s call for US-Chinese decoupling increases electoral risks


Talking points: EUR / USD analysis, euro, US dollar, market volatility, election 2020

  • Trump sent chilling message on global trade after his comments on China
  • What would trans-Pacific decoupling look like? Electoral pressure increases
  • EUR / USD retest the support for several months. What happens if the uptrend starts?

55 DAYS UNTIL THE PRESIDENTIAL ELECTION OF THE UNITED STATES

Poll data from September 9 shows Democratic candidate Joe Biden overwhelmingly leading President Donald Trump. This is not only the case for general elections, but also in perpetual swing states like Pennsylvania, Michigan, Florida, North Carolina and a few others. In total, these battlefield states represent around 156 electoral votes.

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2020 U.S. election polls

EUR / USD to reverse? Trump's call for US-Chinese decoupling increases electoral risks

Source: RealClearPolitics

Not entirely by chance, these states are also home to a large number of manufacturing companies that have suffered from the trade war between the United States and China. While Mr. Trump’s intentions were to reduce the United States’ trade deficit and increase exports to the Asian giant, the economic war has led to a severe contraction in manufacturing and tempered the business climate.

EUR / USD to reverse? Trump's call for US-Chinese decoupling increases electoral risks

Source: CNBC

Mr. Biden and his running mate Kamala Harris has repeatedly denounced Trump’s trade war with China. The former vice president said: “American farmers were crushed by [the President’s] tariff war, ”Ms. Harris echoing a similar message. Their stance in this regard – especially in light of Trump’s recent comments – may give them an advantage in these key states.

Trump’s decoupling from China sends scary message

As that gap between Biden and Trump has widened recently, the latter’s recent comments have added to electoral uncertainty. During Labor Day, he made remarks on the economy and added comments on Sino-US relations. What grabbed the headlines was his use of the word “decoupling” when referring to the economic relationship between the two economies:

“We will make America the world’s manufacturing superpower and end our dependence on China once and for all. Whether it’s decoupling or instituting massive tariffs as I have already done, we will end our dependence on China, because we cannot rely on China ”- Reuters.

While past performance is not indicative of future results, the record shows that when it comes to politics with China, Mr. Trump’s barking is often followed by a bite. Therefore, if re-elected, the additional pressure on China and the rhetoric of ‘decoupling’ could drastically cool cross-border investments and hamper recovery from the Covid-induced recession.

Concerns about continuing to escalate tensions between the United States and China, especially on trade, could boost demand for havens like the greenback. It also adds additional pressure to the upcoming elections. The next major deadline to watch will be the presidential debate on September 29.

EUR / USD analysis

Earlier this week, EUR/USD broke under the slightly upward sloping support channel and is retesting an older appreciation slope. Where the pair moves from here could be critical. A followed bounce could signal a continuation of a previous uptrend and strengthen what appears to be an underlying bullish narrative.

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EUR / USD – Daily chart

EUR / USD to reverse? Trump's call for US-Chinese decoupling increases electoral risks

EUR / USD chart created using TradingView

Conversely, if EUR / USD breaks the floor and is unable to climb above it, it will likely fall back to a flat but critical inflection range between 1.1720 and 1.1698. Invalidating this area could amplify bearish sentiment and could signal the start of a wider and deeper reversal.

— Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

Contact Dimitri, use the comments section below or @ZabelinDimitrisure Twitter



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