The Confrontation Between China and the U.S. Has Escalated

[Redator]

The euro and the British pound continue to show growth, while the U.S. dollar remains weak.

Even though the administration of President Donald Trump announced on Sunday its willingness to reach a deal with China to ease the renewed trade tensions, currency traders are maintaining a cautious stance, even as early signs of stabilization appear in the U.S. stock market.

Vice President J.D. Vance urged Beijing to choose a reasonable path in the escalating trade war between the world's two largest economies, stating that Trump would have more leverage if the conflict dragged on. Later, Trump issued a statement hinting at a possible compromise while simultaneously delivering a veiled threat that a full-scale trade war would harm China.

"Don't worry about China — everything will be fine! The respected Chairman Xi has just been through a rough time. He doesn't want a depression for his country, and neither do I. The U.S. wants to help China, not harm it!" he wrote.

Vance and Trump's statement came amid growing concern about the renewed escalation of the trade conflict, which had already disrupted global supply chains and increased volatility in financial markets earlier that year. Economists warn that further escalation could push the global economy into recession.

While Vance called for restraint, Trump took a harder line. His hint at compromise was interpreted by some as a sign that he was open to negotiations, yet his warning to China suggested he was ready for a prolonged confrontation.

Analysts believe that both sides are aware of the high cost of a trade war. China, in particular, could face slower economic growth and rising unemployment if exports to the U.S. decline significantly.

The remarks by Trump and Vance indicate that the U.S. intends to keep pressuring China to reverse its latest trade decisions, while simultaneously trying to reassure nervous markets that a retaliatory escalation is not inevitable.

The most likely scenario seems to be that both sides refrain from their most aggressive measures, leading to a further — and possibly indefinite — postponement of tariff escalation deadlines agreed upon in May.

It's worth noting that the dollar wasn't the only one hit. On Friday, stocks, oil, and cryptocurrencies also saw their largest sell-off in months. On social media, Trump threatened to respond to China's new restrictions on the export of rare earth metals and other trade measures.

Earlier on Sunday, China's Ministry of Commerce stated that the U.S. should stop threatening tariff increases and called for further negotiations to resolve outstanding trade issues.

"Threatening high tariffs at every step is not the best way to build relations with China," the ministry said. "If the U.S. continues on its current path, China will firmly take appropriate measures to protect its legitimate rights and interests."

It all began last week when China announced new export control measures. In response, an enraged Trump declared on Friday that starting November 1, the U.S. would impose 100% tariffs on Chinese goods, restrict the export of certain software from the U.S., and hinted that he might suspend aircraft component deliveries to China.

As noted earlier, the foreign exchange market, particularly the U.S. dollar, reacted to all this with a decline.

Current Technical Outlook for EUR/USD

At present, buyers need to focus on reclaiming the 1.1630 level. Only a breakout above this mark would allow for a move toward 1.1660. From there, the pair could rise to 1.1690, although achieving this without support from major market players would be quite difficult. The farthest upward target is 1.1720. In case of a decline, I expect strong buying interest to appear near 1.1590. If no major buyers emerge there, it would be preferable to wait for a test of the 1.1545 low or consider opening long positions from 1.1510.

Current Technical Outlook for GBP/USD

Buyers of the pound need to take control of the nearest resistance at 1.3360. Only a breakout above this level would allow the pair to target 1.3390, above which further progress would be quite difficult. The ultimate upward target lies around 1.3425. If the pair declines, bears will likely attempt to regain control near 1.3330. If successful, a breakout below this range would seriously damage bullish positions and push GBP/USD toward the 1.3290 low, with the potential to extend losses to 1.3260.

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