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This comes in response to the French government strategy report earlier this week which floated the idea of either 30% blanket tariffs on Chinese goods or 30% outright depreciation of the euro against the yuan (à la Plaza Accord style). I posted the details of the story earlier here: France lands in hot water with China’s media after strategy report floats blanket tariffsThe headline from China’s state media is the first official response by Beijing, with this being a contentious topic among Chinese netizens in the past few days. But as mentioned earlier:”We’ve seen with Japan how quickly these things can escalate, especially if China citizens feel incensed and/or demand retribution of some sort.”And evidently, we’re starting to see Beijing feel the need to respond in order to keep the peace. Watch this space as it could escalate into more tensions between EU and China relations down the road.For now, both sides will have to lean on each other a little in trying to find ways to make do with US tariffs. It’s a case of the enemy of my enemy is my friend. However, it is best to be reminded that the EU and China were already at a bit of a conflict in the year(s) before Trump took over the US presidency.As for what is the cause of this latest strife between the two sides, it largely stems from this broader issue: US tariffs impact show up in German and French trade numbers, but is there a bigger worry?
This article was written by Justin Low at investinglive.com.
💡 DMK Insight
France’s potential 30% tariffs or euro depreciation against the yuan could shake up forex markets significantly. If implemented, these measures would not only impact trade relations but also influence currency valuations. A 30% depreciation of the euro could lead to increased volatility in the EUR/USD pair, pushing it towards key support levels. Traders should keep an eye on the 1.05 level as a potential pivot point. This scenario could also ripple through commodities, particularly those priced in euros, affecting everything from oil to agricultural products. The broader implications for inflation in the Eurozone could lead to shifts in ECB policy, which is crucial for long-term positioning. On the flip side, while tariffs might seem like a straightforward protectionist move, they could backfire by escalating trade tensions, leading to a potential risk-off sentiment in the markets. Watch for reactions from major institutions and how they adjust their positions in response to these developments. Immediate impacts could unfold within the next few weeks as the French government solidifies its stance.
📮 Takeaway
Monitor the EUR/USD pair closely; a move towards 1.05 could signal increased volatility due to potential euro depreciation.
