China against everyone: stable but dangerous

EUR/USD

Key zone: 1.1850 - 1.1950

Buy: 1.1950 (on strong positive fundamentals) ; target 1.2050-1.2150; StopLoss 1.1900

Sell: 1.1800 (on a confident breakout of the 1.1850 level) ; target 1.1650; StopLoss 1.1870

Over the past quarter, China has made noticeable concessions in its relations with the EU and the United States, but no real truce has been achieved in the tariff confrontation. Beijing is consistently pursuing a strategy of reducing its dependence on American assets, which increases structural pressure on the dollar and undermines the U.S. position in the global competition for capital.

The Asian Dragon continues to follow its chosen course: last week Xi Jinping once again confirmed the strategy of restructuring the economy with a focus on domestic demand while maintaining priority for the innovation sector.

The market was disoriented by reports about the inclusion of a number of Chinese companies in the so-called “Pentagon list” — a register of organizations allegedly linked to supporting the Chinese military. The paradox is that key participants on this list are among the largest buyers of Nvidia AI chips, the supply of which had previously been approved by the Trump administration.

The almost immediate removal of this list from public access only increased uncertainty and raised questions about the real goals of this move.

Despite individual bilateral agreements that Donald Trump actively presents as his own “great” victories, for about six months there has been a steady outflow of capital from China-focused ETFs. In January alone, withdrawals amounted to around $110 billion, and selling pressure remains.

An additional negative impulse for the dollar came from information that the Chinese regulator recommended banks to limit investments in U.S. Treasuries. This once again intensified fears of a structural reallocation of global capital in favor of non-American assets. In effect, the process of reducing dollar exposure is gradually taking shape, and the diversification of Chinese reserves — both public and private — is only accelerating.

A telling example is the activity of China Investment Corporation, which began selling equities amid plans by monetary authorities to curb speculation in the AI segment. Formally, restrictions affected only certain technology stocks, but in reality the sales also spread to other sectors sensitive for the U.S. economy.

Reminder:

• CIC is the largest sovereign wealth fund in China, established in 2007 to manage part of the country’s foreign exchange reserves and diversify national investments.
• The fund’s structure is closely linked to the state and traditionally acts as a stabilizing factor during periods of market turbulence.
• The group’s total assets are equivalent to about 6% of the market capitalization of Chinese A-shares, making it one of the main sources of influence on liquidity and sentiment within the domestic market.
• Historically, CIC capital was used to purchase ETFs and index products during crises, including the Asian market crash in 2015 and recent shocks related to tariff escalation.

Information about the current sell-off appeared in the media at a very opportune moment — immediately after the publication of the “punitive list” by the Pentagon and amid the closure of Chinese markets for the Lunar New Year. Formally, the peak of selling has already passed, but the very logic of Beijing’s defensive policy in response to U.S. trade pressure continues to unsettle investors.

In 2025, the share of dollar-denominated bonds in the external portfolios of Chinese banks had already declined significantly. When it comes to broader structural dollar sales, special attention is now shifting toward Europe, where a large portion of assets is invested in equities with low currency-hedging ratios. In this logic, the strengthening of EUR/USD further amplifies the real tariff pressure from the United States.

So far, capital inflows into stock markets do not indicate a full-scale flight from the dollar. However, in the absence of positive signals in U.S.–China relations, American and European markets risk facing a breakdown of traditional correlations and the formation of new local bubbles in various segments. Europe is already showing heightened sensitivity, and the unstable liquidity of the current week is contributing to active unwinding of speculative positions beyond the prevailing range.

So we act wisely and avoid unnecessary risks.

Profits to y’all!