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Daniel Stasziek

We have witness a really strong bull market for EURUSD so far this year. So in my view, the market has just reached the 1st half of a bigger move upwards. The market currently refused 1.2 with Head and Shoulders chart pattern, so it is more than likely that some shorting EURUSD is ahead, but caution is required as all market sentiment can revert back to the bull market at anytime.

A strong argument for EURUSD long as described in my comments to Pixta's photo post is also supported from the idea that Trump with Mnuchin want to see weaker USD, because of the US based companies' competitiveness. US Treasury Secretary Steven Mnuchin said moments ago on CNBC that "having a weaker dollar is somewhat better for trade".

In this context Trump said to Germany in May: "If you want to build cars in the world, then I wish you all the best. You can build cars for the United States, but for every car that comes to the USA, you will pay 35 percent tax". Angela Merkel replied something like: "Our cars are higher quality, you should create better cars if you want to compete with German ones".

However, exactly here Mr. President Trump hit the nail on head. A problem which is not discussed much in the European Union, it is - Germany enjoys the benefits of highly undervalued currency. In part at least, Germany gain a huge competitive advantage not only over eurozone countries, but also the rest of countries in the world including the United States of America. Other countries like Italy, Spain, France and more suffer under the Euro and can't become more competitive due mainly to the overvalued currency relative to their economy within on the global market stage, but the latter is a completely different discussion and maybe worth posting on another occasion.

Furthermore we have some estimates based upon PPP by IMF, which concludes the right valuation of Euro to USD. In 2014 according to IMF, Euro was 5-15% undervalued for Germany. In 2016, as Euro continued depreciating, it was 15-25%. By research from World Economics conducted in 2017 it has been something around 17% undervaluation.

And now, where is the point? What Trump wanted to do with the tax, was to equalize competitiveness betwen US car producers and the German car producers. When this tax did not meet with any success in Germany and the only reply was in humour from the German politicians. The key politics became, as mentioned above and what Mnuchin believe in, to have a weaker currency. The investors know this and the US deficit of Current Account Balance will make it even easier for them to take a ride on the dollar weakness.

So the fair values of EURUSD exchange rate according to institutional estimates are on picture below, including Trump's 35% tax. Anyway I would decrease it to 20%, as there are also tax costs for the government etc etc.

Thanks for reading this Foreign Exchange article and feel free to leave a comment or thumb up and like. Further articles are available on the Forex link titles below:

Big Banks Forex Trading Strategy || Mid-Term

A Journey Through the History of Forex Market Cycle Theories

Trading FX with the RSI

Daniel Stasziek - trading since 2009. If you want to start trading, I suggest you follow the general advice: "run very quickly, the other way."

Comments

  • Mnuchin accidentally said the truth, the truth which was written here 4 months ago. But then Mr. president Donald Trump had to correct him by saying dollar is going to get stronger and stronger, ultimately I want to see a strong dollar.

    I can't say whether this will change the overall sentiment in the USD but following weakening dollar more further if your strategy allows you to do so, still remains more favourable.

  • This is another Forexmospherian Forex Trader to follow, I remember this awesomeness in motion Daniel Stasziek and great EURUSD techs and treble bottom action! 

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