Trade disputes between the United States and China are beginning to acquire more and more features of open confrontation. On Thursday, a spokesman for the Ministry of Commerce of China said that the United States was abusing defensive control measures, which made the negotiation process more difficult, while the United States was preparing to tax the entire Chinese import at 25%.
The report of the US Treasury on the inflow of foreign capital showed that foreign investors continued their exodus from the US stock market and government bonds in March. The stock market lost 207.2 billion dollars of investments for 12 months. The flow of exodus from treasures is not so large, but it continues to grow. China has reduced its investments by 20.5 billion, this is the maximum since 2016. Even if against the background of the total volume of investments in the amount of 1.12 trillion, it does not look like a large-scale and the trend is negative. China warns the United States that a one-sided increase in tariffs may well cause a reduction in investment in US government debt by a similar amount, which will provoke a budget crisis and completely eliminate the temporary benefits from an increase in tariffs.
EUR / USD pair
After the panic sales at the beginning of the week, European stock markets once again demonstrated their ability to grow, but so far, the recovery is limited. The demand for defensive assets remains high as the German Bond yields have fallen to 3-year lows, indicating that the overall pessimism in the eurozone has deeper roots, namely weak economic growth and low inflation.
For next week, the important day will be Thursday, when the PMI indices for Germany and the eurozone, as well as the Ifo indicator and final GDP data for Germany in Q1, will be published. The PMI indices looked rather gloomy in recent months. A large-scale decline in the production index, which was in a recession for three months in a row was somewhat smoothed by the resisting service sector but the pressure on GDP was strong anyway.
Since the situation with production orders in April improved slightly, a slight rollback of production PMI is possible. However, there is a threat of a large-scale slowdown in exports due to the serious complication of trade relations between the US and China undermines investor confidence in recovery.
The euro will remain under pressure on Friday and recovery efforts will be limited. Support for 1.1165 survived on Thursday but the chances of re-testing are high. If successful, the downward movement may continue to 1.1130/35.
GBP / USD pair
The pound continues to fall and moves close to a three-month low of 1.2770. This time, the main driver of the fall is the internal political differences in the ruling party, where there is growing discontent with the results of Theresa May's work. May is strongly recommended to leave her post, despite the fact that she is preparing to submit a new version of the Brexit agreement to Parliament. It is obvious that the conservatives have lost their unity and do not believe that May will be able to achieve positive changes, which is regarded as a deterioration in the position of the party in the light of the upcoming elections. The resignation of May is able to raise a more radical politician who will lead the country out of the EU without any agreement, which puts pressure on the pound.
With regard to economic factors, the new introductory can be expected only on Wednesday, when new data on inflation will be published. Until Wednesday, the pound is unlikely to have reasons for strengthening accordingly. The goal is to reduce to the support zone of 1.2650/65. In a technical perspective, it is possible for a rollback today towards the resistance of 1.2860/65, but if it happens, it will certainly be used for large-scale sales from more profitable levels.