By Orbex

Chinese negotiators have arrived in Washington for preliminary meetings ahead of the next round of scheduled trade talks due to take place in October.

Chinese state media reported mid-week that Chinese Vice Minister of Finance Liao Min was in Washington. He will be heading up a vice-ministerial delegation discussing trade and economic issues with US officials.

The preliminary meetings come ahead of the next round of high-level trade talks planned for early October. News of the Chinese delegation’s visit is helping boost optimism around trade talks. This comes on the back of concessions made by both sides.

Gesture of Goodwill

Trump recently announced that a further 5% levy, due to take 25% tariffs on $250 billion of US goods up to 30% will now be postponed from October 1^st until October 15th. This is seen as a “gesture of goodwill”.

Following this announcement, it was then reported that the Trump administration is weighing up offering China an interim trade deal which could include the further postponing of tariffs and even the rolling back of some tariffs already in place, in exchange for commitment around intellectual property and agricultural purchases. China responded in kind saying that it will exempt some US agricultural products from tariffs.

Traders Eyeing End To Trade War

Market optimism is bolstered around a potential deal, due to the better tone to communications between the two leading global economies.

The US and China have been engaged in a furious tit-for-tat trade war since January 2018 which has had disastrous implications for both economies as well as global conditions in general. Both the Fed and the PBoC are forced to ease. This will buffer their respective economies against the negative impact of the trade war. However, a raft of central banks across the globe have cited the downside risks from the ongoing trade war as a contributing reason for recent easing announcements.

Earlier in the year, the market hoped for an end to the trade war as negotiations were seen to be progressing well. However, following the unexpected breakdown of talks in May, Trump announced fresh tariffs on China, which then reacted with new tariffs of its own. Further tariffs were since announced. However, in light of recent commentary, the market is now once again hopeful that the US and China will be able to strike a deal to put an end to the trade hostilities.

Trump Reveals Japan Trade Deal

Away from the ongoing US / China trade wars, Trump has claimed a small victory this week as the US and Japan have agreed to an initial trade deal. Trump told reporters this week that his team had come to an agreement with Japan which could be implemented without the need for congressional approval in the US. In a letter released by the White House, Trump said that he would be entering into trade agreements over trade tariffs and digital trade “in the coming weeks”. He also said that he would make a deal under trade laws which allow the president to establish reciprocal tariff reductions, without the need for a vote. However, it is not clear whether Trump plans to press ahead with proposed tariffs on Japanese autos, threatened earlier in the year, under National Security measures.

Technical Perspective

The recent sell-off in USDCNH has seen price reversing back under the 7.1041 level. If price holds below this level, there is the risk of a further move down to the 6.9803 level where there is also confluence with the rising trend line from year to date lows. Should price hold a test of this level, the focus will remain on a further push to the upside, with 7.1041 remaining the key upside pivot for now.

By Orbex