China continues to crush europe

EUR/JPY

Key zone: 185.00 - 185.80

Buy: 186.20 (against a strong positive fundamental backdrop); target 187.50; StopLoss 185.50

Sell: 185.00 (on a pullback after retesting 185.50) ; target 183.50-182.50; StopLoss 185.70

While global markets remain focused on negotiations between Washington and Beijing, the main trade conflict is gradually shifting toward Europe. Chinese exports continue to expand at a pace that can no longer be explained solely by the recovery of the global economy. China's manufacturing capacity is still growing much faster than domestic demand, with an increasing share of excess production being redirected to foreign markets.

June's data show that China's trade surplus with the European Union has reached a new all-time high, putting additional pressure on European industry, corporate profits, and Brussels' economic policy. For financial markets, this is no longer simply an issue of foreign trade—it marks the beginning of a new stage of economic confrontation.

Reminder:

• According to Bloomberg, China's trade surplus with the EU increased by 27% compared with a year earlier, reaching $32.9 billion.
• China's total exports climbed to $412.4 billion in June 2026, up 27% year-over-year.
• China's total foreign trade turnover reached $699.2 billion, an annual increase of 30.6%.
• During the first half of the year, China's imports of European goods totaled $135.6 billion, rising by only 9%.
• Over the past year, EU exports to China declined by 6.5%.
• China's trade surplus with Germany more than doubled, while its surplus with France fell by 81%, reflecting the different trade structures within the European Union.

In practice, European industry is beginning to lose competitiveness on two fronts simultaneously: first in the Chinese market itself, and then within the European Union.

The sectors most exposed include:

• Automotive manufacturing;
• Steel and metallurgy;
• Chemicals;
• Solar energy;
• Industrial machinery and equipment.

Germany faces particularly severe challenges. Chinese manufacturers are steadily displacing German companies from China's domestic market before using that competitive advantage to expand across Europe.

China's record trade surplus is increasingly becoming a political argument. The European Union has already begun systematically reshaping its trade defense framework.

• On July 1, 2026, a new safeguard mechanism protecting the European steel industry from the effects of global overcapacity entered into force.
• Countervailing duties on Chinese electric vehicles remain in place.
• In February, the EU imposed anti-dumping duties ranging from 57.7% to 90.3% on Chinese seamless steel cylinders and duties of 56% to 60% on candles imported from China.
• In July, the European Commission formally adopted definitive anti-dumping measures against Chinese passenger car and light truck tires.

The next industries that could face restrictions include chemicals, renewable energy components, hybrid vehicles, and products that may become subject to safeguard quotas and minimum import prices.

Officially, both sides have agreed to seek a resolution to their trade disputes by October. However, China's economic position is strengthening considerably faster than Europe is developing its response.

What does this mean?

Currency traders should closely monitor:

• The People's Bank of China's daily yuan fixing;
• USD/CNH price action;
• European manufacturing PMI data;
• Changes in Germany's trade balance;
• New trade policy decisions announced by the European Commission.

Current estimates suggest that the yuan remains approximately 15% undervalued against the euro, compared with roughly 20% a year ago. For USD/CNH, the key drivers remain the People's Bank of China's policy, the yield differential between the United States and China, and the likelihood of new import restrictions. Even with record trade surpluses, an escalation of the trade war could trigger further weakness in the offshore yuan.

The outlook for the euro is even more complicated.

On the one hand, inexpensive Chinese imports help contain inflation and could provide the European Central Bank with greater flexibility to pursue a more accommodative monetary policy. On the other hand, the deterioration of the trade balance, weakening competitiveness of European industry, and mounting pressure on corporate earnings all constrain economic growth across the euro area.

For traders, the critical factor is no longer the sheer size of Chinese exports, but rather the speed of Europe's political response. That response is likely to determine the performance of the euro, the yuan, European industrial stocks, and overall market volatility in the coming months—especially if the U.S. economy continues to outperform Europe.

So we act wisely and avoid unnecessary risks.

Profits to y’all!