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02.05.2025 09:57 AM
China Has Finally Responded

The euro, the pound, and other risk assets reacted with gains following statements from Chinese authorities that they are assessing the possibility of trade negotiations with the United States—marking the first real sign of progress between the two sides since Donald Trump raised tariffs last month.

In a statement released Friday, China's Ministry of Commerce noted repeated comments by senior U.S. officials expressing willingness to negotiate with Beijing on tariffs and urged Washington to show sincerity. "The U.S. has recently sent messages to China through relevant parties, hoping to begin negotiations," the ministry added. "China is currently assessing this."

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The statement signaled that the deadlock between the world's two largest economies might be shifting after Trump raised U.S. tariffs to their highest level in a century this April. In response, Beijing retaliated in kind. Trump has repeatedly stated that Chinese President Xi Jinping needs to reach out to initiate tariff talks. Earlier this week, Treasury Secretary Scott Bessent said that Beijing must make the first move toward de-escalation.

Many analysts have likened the move to "the first rain after a long drought," indicating that approval for talks has been granted at the highest levels of Chinese leadership. Who will lead the negotiations, what the strategy will be, and what model of engagement with Washington will be used—all of this is likely under intense discussion right now, and we'll learn more details soon.

Beijing's willingness to negotiate may stem from several factors. First, the slowdown in China's economic growth—partly caused by the trade war—is prompting the government to seek stabilization. Second, increasing pressure from the business community, which is suffering from uncertainty and rising costs, is also a contributing factor.

On the other hand, the U.S. administration likely sees renewed talks as an opportunity to demonstrate its ability to influence China's trade policy and defend American corporate interests. However, there is also a risk that negotiations will again stall, as they have in the past, potentially leading to renewed tensions. In any case, the prospect of renewed dialogue brings hope that the two sides can find a compromise solution that avoids further escalation and helps stabilize the global economy. It is essential that both sides show flexibility and a willingness to engage in constructive discussions on contentious issues.

In the U.S., meanwhile, the situation is not as good as many believed. The economic fallout from the standoff may add momentum to efforts to bring both sides to the negotiating table. According to the latest data, the U.S. economy contracted at the beginning of the year, primarily due to a massive surge in imports ahead of tariff hikes—a move that unsettled global financial markets and caused a drop in consumer confidence.

In China, industrial activity fell to its lowest point since December 2023, as evidenced by the official manufacturing PMI released this week. New export orders dropped to their lowest level since December 2022 and posted their largest decline since April that year.

As I noted earlier, the news was met in the currency market with purchases of risk assets and a weakening of the U.S. dollar.

EUR/USD Technical Outlook

At the moment, buyers need to focus on breaking through the 1.1337 level. Only this would pave the way for a test of 1.1386. From there, the pair could aim for 1.1437, although reaching that level without support from major players will be difficult. The ultimate target would be the 1.1487 high. If the instrument declines, I expect some serious buyer activity only near 1.1265. If none appears there, it would be wise to wait for a new low at 1.1215 or consider entering long positions from the 1.1185 level.

GBP/USD Technical Outlook

For pound buyers, the immediate target is to break through the nearest resistance at 1.3315. Only then will it be possible to aim for 1.3354, above which it will be quite difficult to break through. The ultimate target will be the 1.3394 level. In the event of a decline, bears will attempt to seize control of the 1.3280 level. If successful, breaking this range would deal a significant blow to the bulls' positions and push GBP/USD down toward the 1.3250 level, with a potential move toward 1.3205.

Jakub Novak,
Analytical expert of InstaForex
© 2007-2025
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