Abstract:The Euro could suffer after the US recent decision to end all Iranian oil-importing waivers. The conflicting geostrategic approaches to Iran between the EU and US may strain already-tense trade relations.
TALKING POINTS – IRAN OIL WAIVERS, EU US TRADE WAR, EURO
US announced the discontinuation of Iran oil waivers
Euro at risk from divergence in EU-US foreign policy
How will this impact Fridays US-Japan trade talks?
See our free guide to learn how to use economic news in your trading strategy!
While the surge in crude oil prices after the US ended sanction wavers in Iranian oil took center stage, another asset may soon be in the spotlight: the Euro. The divergence in US and EU foreign policy toward Iran may add another crack to an already-fractured relationship. This comes as policymakers from both sides of the Atlantic prepare to re-enter what appears to be another trade war.
In 2018, President Donald Trump shredded the 2015 nuclear deal with Iran and reimposed sanctions against Tehran. The EU, however, wanted to preserve the previous agreement as a way to maintain regional stability. European policymakers subsequently created an economic program that allowed the EU to circumvent US sanctions and facilitate trade with Iran as a way to incentivize Tehran to continue with the original agreement.
If the EU pursues its original plan as a way to mitigate Irans economic crisis, it could lead to the US imposing sanctions against the EU. The result would almost certainly involve retaliation and could lead to a trans-Atlantic trade war. This would be occurring right as the US approaches what appears to be the end of an economic conflict with China, one of the biggest weights dragging global growth according to the IMF and the WTO.
The discontinuation of Iranian oil-importing waivers adds an additional complication to US-Japan relations too. Prime Minister Shinzo Abe will be holding a summit with Trump on Friday as the White Houses continues its campaign to redesign 21st century global trade relations. Japan may find itself scrambling to find new sources of foreign oil and this could lead to less-than-optimal backdrop for negotiations.
A deterioration in US-EU/Japan trade relations would likely not only affect the Euro but weigh on sentiment-linked currencies like the New Zealand and Australian Dollars. Growth in Europe and the US has been increasingly underperforming relative to economists‘ expectations and global PMI’s have been showing worrisome weakness. Monitoring political risk therefore becomes exponentially more crucial because of the inherently embedded market reactions it elicits.
Chart Showing Crude Oil Prices – Daily ChartFX TRADING RESOURCES
Join a free Q&A webinar and have your trading questions answered
Just getting started? See our beginners guide for FX traders
Having trouble with your strategy? Heres the #1 mistake that traders make
--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter
Disclaimer:
The views in this article only represent the author's personal views, and do not constitute investment advice on this platform. This platform does not guarantee the accuracy, completeness and timeliness of the information in the article, and will not be liable for any loss caused by the use of or reliance on the information in the article.
Consolidation for the week ahead: US inflation report to cast light on the Fed’s trajectory
Asian stocks made a soft start to the week on Monday while oil and the euro were under pressure, as the return of COVID-19 restrictions in Europe and talk about hastened tapering from the U.S. Federal Reserve put investors on guard.
As investors head into the fourth quarter, the VIX Volatility Index - often referred to as the market‘s ’fear gauge - is in an uptrend. In September, US benchmark stock indices saw some of the worst monthly performance since March 2020. In fact, the S&P 500 and Nasdaq 100 finished the third quarter little changed. More importantly, they trimmed most of their gains. The Dow Jones declined.
In 2020, economic growth of the Eurozone and the world in general will also depend on how global trade talks turn out, particularly whether negotiations between various global players, including Britain and the European Union, can eliminate uncertainties in international trade.