Perhaps, even in his wildest dreams, Donald Trump, who unleashed a trade war with China, could hardly imagine that it could provoke the collapse of the eurozone.

The fact that the German economy, dependent on exports and external demand, was on the verge of a technical recession, forced German politicians to talk about the need to increase public spending. In particular, German Finance Minister Olaf Scholz said that the country can use a package of fiscal incentives in the amount of €50 billion, as was the case after the financial crisis of 2008. It is noteworthy that Italy feels no better than Germany, but it cannot afford to increase government spending due to the strict requirements of the EU to the budget deficit. Although there is no talk of leaving the eurozone of the third-largest economy of the currency bloc, it is unknown what can happen.

In the second quarter, the German GDP lost 0.1%, and the Bundesbank expects that the rate of decline will remain modest, but it does not add optimism to investors.

The reason for the recession in the German economy was a sharp decline in exports and industrial production. Despite the fact that in the second quarter, the negative impact of these factors partially offset the growth of household and state spending, the German Central Bank is not sure that the positive drivers of GDP will be sustainable.

The decline in German exports illustrates the adverse effects of the US-China trade war, and the negative effects of the duties already imposed have yet to be fully manifested, with the risk of further escalation of the conflict remaining. Additional problems for the German economy are created by the deterioration of the situation in the automotive sector, and one of the key risks is the UK's disordered exit from the EU, which will be painful not only for the country but also for the entire Alliance.

It is assumed that if Berlin does not change the course of its monetary policy, the ECB will have to introduce more extensive measures to stimulate the economy. Moreover, if the European regulator resumes the program of buying government bonds, the euro may suffer.

Meanwhile, in Italy, the Five Star movement, which has broken the bonds of friendship with the North League, has almost agreed with the Democrats to create a new coalition. The country is preparing to issue a vote of no confidence in Prime Minister Giuseppe Conte and hold early elections, which will certainly raise issues of EU budget restrictions and tax cuts – extremely painful topics for the euro.

As for the United States, it continues to reap the benefits of its own protectionism. The head of the White House blames the fact that greenback stubbornly does not want to weaken, the Fed, which has not expressed a desire to continue to lower interest rates. However, according to experts, the reasons for the strengthening of the US currency lie in the trade war unleashed by Trump between Washington and Beijing.

In August, the USD index rose to its highest level in the last two years, as investors sought protection in safe-haven assets amid growing fears that the US and China trade dispute could lead to a global recession.

"It is natural that the dollar remains strong. D. Trump is waging a trade war with the economies that have a surplus with the US and make the US economy even stronger," MUFJ strategists said.

It is expected that the ECB will strengthen stimulus measures next month, and the data on business activity in the eurozone, which will be released this week, will be weak, so the risks for EUR/USD remain downward. If the pair falls below the support level of 1.1065, the chances of updating the August low may increase.