While US leaders are trying to mend ties with China, making business trips there almost every month, President Joe Biden introduced new investment restrictions against China.
These measures aim to limit China's ability to develop military technologies that could allegedly threaten US national security.
According to the new rules, the US will regulate investments in several Chinese companies. These companies are involved in semiconductor production, quantum computing, and artificial intelligence. These types of measures have been discussed for two years. Chinese opponents insisted on faster and stricter actions, while others, including the US Treasury Department, called for narrower measures that would take longer to implement.
Experts point out that the details of the new rules have yet to be worked out. However, the wording suggests that the Treasury and those advocating a more cautious approach have won. The order will take effect only next year and will not be retroactive. Ultimately, this might exclude passive investments and investments in publicly traded securities, index funds, and other assets.
Venture capital firms in the tech sector lobbied the Biden administration to narrow the order's scope after learning the White House wanted broad US investment restrictions. Allies also resisted. The European Union and others have stated that strict restrictions could harm their economies.
The Biden administration said that the new requirements target those wanting to acquire stakes in Chinese companies with limited access. This could be through mergers, direct investments, private equity injections, or joint ventures. The restrictions are expected to apply not just to Chinese startups but to larger firms as well.
China has already responded, expressing deep disappointment with the US decision to introduce restrictions. The country plans to defend its interests more rigorously. This was announced yesterday by the embassy spokesperson, Liu Pengyu. In the statement, Liu said that "China opposes the US's overuse of national security to politicize and weaponize trade, scientific and technological issues and deliberately making obstacles to normal economic and trade exchanges and technological cooperation." Later, Beijing's commerce ministry urged Washington to respect market principles and fair play instead of hindering global economic recovery.
The currency market showed no reaction to Biden's statements.
Regarding today's technical picture for EUR/USD, the pressure on the euro remains the same. To regain control, buyers should keep the price above 1.0960. This would pave the way to 1.1005. From there, the price may climb to 1.1040 and 1.1070. However, it would be quite difficult without support from major traders. If the pair drops, I expect significant action from major buyers only around 1.0960. If they fail to be active, it would be wise to wait for a low of 1.0915 or consider long positions from 1.0870.
Meanwhile, demand for the pound sterling is mounting. The pound sterling will rise only after bulls gain control over the 1.2735 level, which still needs to be reached. Regaining this range will boost hopes for a recovery to 1.2780, after which we can talk about a surge to around 1.2840. If the pair falls, bears will attempt to take control over 1.2740. If they succeed, a breakout of this range will hurt bulls' positions and push GBP/USD to a low of 1.2690, with the potential to drop further to 1.2650 and 1.2620.
