USA and China: one more step towards the "big deal"

Over the past months, representatives of all the central banks of the leading countries of the world, have stated that they are concerned about the current situation in one form or another: some of them (in particular, the deputy head of the RBNZ) allowed the mitigation of monetary policy parameters if the trade war gets its continuation.

However, the results of the negotiations ( which, by the way, ended two days later than planned) can be called successful. The parties came to an understanding on a rather complex issue, which concerns the national currency of China. Washington has long complained that Beijing is using the manual control of the yuan as a tool in a trade war. Indeed, last year, the Chinese currency depreciated against the dollar by 5%, from 6.240 to 6.976, reaching a historical record. However, at the end of 2018, when the parties took the first steps to conclude a "truce", the yuan began to recover, with a fairly active pace (currently usd / cny is at around 6.711). In other words, Beijing went to a meeting on this issue several months ago, which only confirmed its intentions now.


Thus, according to the head of the American Ministry of Finance, Stephen Mnuchin, the United States and China have agreed to stabilize the yuan. And although he did not clarify the details of the reached agreement, the essence of the agreement is clear: Beijing will no longer devalue the national currency, thereby protecting its country's export sector from the US tariff policy. It is understood that Washington will take a reciprocal step (Trump said that he would be honored to remove trade duties in the event of a deal), but Mnuchin said nothing about any possible actions by the United States.

However, even the voiced information suggests that the parties are one step closer to the conclusion of the transaction. Comments of the first persons eloquently speak about it. In particular, the Vice-Premier of the State Council of the People's Republic of China, Liu He, said that during the consultations, the working groups held "fruitful negotiations" and made positive progress in matters of trade balance, agriculture, technology transfer, protection of intellectual property and financial services.

In turn, Donald Trump was less verbose, yet he made it quite clear that: : firstly, the trade war would not resume on March 1, and secondly, the chances of concluding a "big deal" are very large. First of all, he said that the deadline for negotiations would be extended - if the parties do not have time to agree on all the points of the preliminary transaction (and most likely, they really do not have time). He added that Washington would "most likely" make a deal with Beijing, since the negotiations are proceeding "quite productively". Also, Trump announced a meeting with Xi Jinping, which can be held in March on the territory of his estate in the state of Florida.

In other words, traders can breathe a sigh of relief: on March 1, the trade war will not continue. Moreover, a historical event may take place this spring, when two superpowers complete the annual trade conflict.

Despite such encouraging news, the euro- dollar pair finished the trading week in a flat, almost at the opening level. This is explained by the fact that the foreign exchange market "did not wait" for the first results of the negotiations - the main comments of the parties were announced after the close of trading. In addition, the working group extended consultations for another two days, and this factor could also play a certain role in the context of market reaction.

On Monday, against the background of a half-empty economic calendar, this topic will surely be recouped by the market. Given the fact that the negotiations ended on a positive note, the dollar will again be under certain pressure. It is also worth recalling here that the data published last week provided little support for the euro: in particular, the composite eurozone PMI index showed a positive trend for the first time in six months (first of all in the service sectors in France and Germany).


And although the slightly weak business confidence index from the IFO leveled optimism about this, the eur / usd bulls can prove themselves on the first trading day. ( Kijun-sen line on the daily chart) is quite likely. Support levels are located at 1.1302 (Tenkan-sen line on D1) and at 1.1230 (the bottom line of the Bollinger Bands indicator is on the same timeframe).

The material has been provided by InstaForex Company -