EU/China Sign Historic Investment Deal

During the US overnight session, a landmark investment deal was made between the EU and China. According to CNBC, the “Comprehensive Agreement on Investment” was signed by lead negotiators from each party. While the agreement is not altogether unexpected, the timing is worthy of note. With the fledgling Joe Biden administration set to enter the White House in a little over three weeks, many view last night’s deal as signaling the end of the US/China trade war.

So, what’s in the agreement? At this point, the details and commitments are vague. However, there are a few interesting items that came out of last night’s engagement:

• The meeting was held virtually. Attendees were Chinese President Xi Jinping, German Chancellor Merkel, French President Macron, EU President von der Leyen, and EU Council President Michel.
• China agreed to prohibit “distortive practices,” specifically forced technology transfers. 
• European Council: “China has committed to an unprecedented level of market access for EU investors.”
• China’s Ministry of Commerce Spokesman Gao Feng stated that the deal could help restore “normal” trade relations with the US. 

In short, elections have consequences ― under Biden, tariffs and trade wars will quickly become things of the past. And, while this may boost equities investment, China’s influence globally is poised to expand. For the USD, this is yet another bearish indicator.

Will The EU/China Investment Deal Send The USD South?

By any measure, it has been a rough year for the dollar. The weekly chart of December USD Index futures gives us a clear picture of just how poor the performance has been.

Overview: Following the announcement of the EU/China investment deal, the USD has held firm vs the EUR and CNY. Nonetheless, both the USD/CNY and EUR/USD are approaching levels last seen in 2018. Unfortunately for those holding Greenbacks, the stage is set for more pain in 2021.