Asia wrap
Asian Markets Stumble as U.S. Escalates Trade Tensions with China; Europe Rallies on German Policy Hopes
Asian equities took a hit on Monday as the U.S. ramped up pressure on China with a new executive order from President Donald Trump, restricting Chinese investment in key U.S. sectors deemed strategically sensitive. This latest move adds fuel to the ongoing trade tensions and signals that U.S.-China economic relations are set to become even more volatile.
Meanwhile, across the globe, European equities kicked off on a stronger note, extending last week’s rally on optimism that Germany’s new government will embrace fiscal expansion to counteract the slowdown in Europe’s largest economy. Markets are betting that Berlin will loosen the purse strings, providing much-needed economic support when the continent faces the looming spectre of a global trade war.
While Asian risk sentiment is taking a hit from Washington’s latest moves, European investors are clinging to the idea that a policy shift in Germany could provide a fresh economic catalyst. Whether that optimism holds, however, depends on how much the new regime in Berlin is willing—and able—to deliver.
Right now, we’re in the honeymoon phase—that fleeting moment where the sheer psychological relief of replacing a hated government is enough to spark a flicker of optimism. Markets, businesses, and voters are all soaking in the feel-good factor, hopeful that fresh leadership will somehow reset the economic trajectory.
But reality has a way of crashing the party. No matter what policies are being floated or tax cuts are being dangled to win more electoral favour, there’s one inescapable truth: they’ll have to find a way to pay for it.
The narrative is still being shaped, the promises are still appealing, and the cracks haven’t started to show. However, the hard choices determining whether optimism turns into real economic progress are still ahead. The question isn’t what’s being promised today, but who will foot the bill when reality kicks in?
Forex markets
The sum of all weaker U.S. data finally started to chip away at the dollar as more traders began leaning into the idea that Trump’s tariffs might be more bark than bite. But just as the greenback looked like it was losing steam, London speculators jumped in, giving the dollar a fresh bid after news started spreading that President Donald Trump had issued a memorandum instructing a key government committee to restrict Chinese investment in strategic U.S. sectors like tech and energy.
And it doesn’t stop there. Washington is now pressuring Mexico to slap its own levies on Chinese imports, a direct response to Chinese firms shifting production south of the border to dodge tariffs from Trump’s first term. The message? No one is safe out here.
It’s an interesting setup, and after last week’s one-way end-of-the-week dollar selloff trade, it’s hard to see things unfolding the same way. With fresh trade tensions injecting volatility again, one thing’s for sure—this won’t be a dull week for FX.
The euro initially reacted positively to the German election results, as the AfD’s rise was mainly in line with expectations, and markets welcomed the idea of a more stable two-party coalition after the outgoing government’s three-way deadlock. But let’s be real—this is just a honeymoon trade.
That’s why we started hitting EUR/JPY above 157, our preferred setup, while long EUR/USD remains nothing more than a short-term flip trade—not a trend. Any move beyond 1.0500 is still a sell until proven wrong, given the looming risk of U.S. tariffs on the EU, a resolutely dovish ECB, and the fact that Germany’s election results are shaping up to be a “Policy Trainwreck in the Making.”
Ultimately, we expect EUR/USD to test the 1.0400-1.0350 zone, if not lower, as we approach April 2—tariff D-Day. And if President Trump wakes up on the wrong side of the bed with an EU bee in his bonnet, it could happen even sooner. The only real upside risk is a Russia-Ukraine ceasefire, which could spark a knee-jerk bounce, but the real question is: how big of a position do you want to put on? Because in this environment, the euro is fighting an uphill battle.