The interruption of last week’s steady negative news stream from the US saw the dollar consolidate its recent losses. German Chancellor Merkel’s comments ended this brief phase and sent the euro higher. Since the euro broke above $1.1100-$1.1130, we have been warning of potential toward the US election high of $1.13.
Last week the US and China announced some details of a tentative trade agreement. Many observers are scratching their heads. Commerce Secretary Ross says the goal is to reduce the roughly $360 bln bilateral deficit. There is little in the agreement that will achieve this.
The beef and other agricultural goods that the US can begin selling China are not on favored terms, and US producers will be competing, for example, with Brazil. Moreover, the amounts are too small to produce much of the trade imbalance. The US has agreed to be more open to cooked poultry from China, but this too is not on favored terms, and will health concerns may limit US demand.