Fortress under siege? The Euro in the crossfire

The Euro is currently consolidating within a bearish range , caught in a vise between the shifting odds of the next Fed rate cut in December (now at 50% probability, down from nearly 100% just weeks ago) and China’s strategic push to establish a lasting commercial foothold in Europe.

On one side, the United States has been aggressively wielding tariffs , though it appears a compromise has been reached, stabilizing European duties at 15%. On the other, China, which already enjoys a strong relationship with Germany and the Netherlands , is steadily carving out a greater share of the European market by exporting its products.

This raises the critical question: What are the concrete consequences of this geopolitical tug-of-war for the Forex market, and how concerned should we truly be?

Geopolitical lessons for neophytes

The western side

The United States, out of their Shutdown, manage to reach a pact with Europe, capping customs duties at 15%, knowing that they can count on Europe's energy dependence — the United States became the main supplier of LNG (40-50%) and oil (15-20%) to the EU in 2024. However, strategically, 90,000 jobs are created by German companies based in the United States alone, compared to only 1400 jobs created by American companies in Germany.

So, the protectionism, recently described as “forced” by the press, was the royal road of the United States, already engaged in a technological war with China, a war that puts Europe a bit in the middle, not only geographically.

The German trade surplus in the United States grew from 50 billion in 2020 to 92 billion in 2024. How? Through foreign purchases to be resold in the country. “Other Machines” were the most exported product to China in 2024, even though Eurostat (source) does not give more details. In contrast, exports of medicines, cars and motor vehicles fell sharply between 2023 and 2024 (source). This especially concerns Germany and the Netherlands, which have always established alliances with China — keep in mind this fundamental point for our Forex analysis — which, in the long run, help the superpower to find their way in a competitive way on the European market.

On that note, it seems fair to me to move on to the next context analysis.

The east side

China, which has been selling for years to Germany and the Netherlands, which in turn, adapt products to European compliance and resell them in the United States and other markets — is increasingly tightening the noose to stabilize its brands. Low cost in Europe. All the more so now that Germany, through Hamburg, is supporting the infrastructure plan for the birth of the “New Silk Road”, as affirmed on October 1, 2025 by the CEO of the Port of Hamburg, Jens Meier.

The statistics already showed an undeniable reality on the situation, the import-export from China to Europe. With significant figures, especially from the Netherlands, the largest importer of Chinese products, and Germany, the largest exporter.

Europe, beyond this dynamic, which could in reality exacerbate American customs taxes against it to prevent China from bypassing those imposed on it via its ports on the Old Continent, thus becomes a bit like the Asian giant's Plan B. Major Chinese exporters, weakened by American barriers, are repositioning themselves towards Europe.

A recent symbol of this strategy, the installation of Shein at BHV Marais in Paris which, in the last five days, has already attracted 50,000 visitors on less than 100 square meters. Les Galeries Lafayette, who were also invited to the table of the giant of Super Fast Fashion, politely refused and saw at least seven of their stores begin the procedures to become BHVs and welcome Shein onto their shelves.

By choosing France as a bridgehead, these players see a double interest in it: direct access to European consumers and a stable logistical base, away from transatlantic tensions.

But let's get to the numbers...

Is the CNH a legendary card?

Considering the European division as strategic tools, the implications for EUR/USD and the stability of the Euro are getting worse. The worst effect for the euro is not the risk of tariffs, but the erosion of the European productive base due to competition.

Asian competition, facilitated by the various Euro-Chinese consortia that take place more or less tacitly in Europe, is pushing European companies to slash prices in order to remain competitive. This results in structural and diffuse deflationary pressure in the Eurozone. A deflation makes it more difficult for The ECB to normalize its monetary policy. The ECB could be forced to keep interest rates lower than other central banks, such as The Fed, weakening the currency. It is a fundamental and lasting factor that is pushing EUR/USD down.

The Chinese strategy of negotiating more with countries like The Netherlands and Germany creates a certain discontinuity of principles and intentions with other EU countries. The absence of a unified and coherent commercial strategy increases the political risk premium on the Euro. Investors prefer currencies from jurisdictions that are perceived to be more united and able to defend their economic interests in unison, even on the sidelines. The greater the disunity, the more pronounced the currency's weakness.

While on the one hand, the conversion of capital for the construction of warehouses or the purchase of port terminals has a positive effect on the exchange rate thanks to the increase in demand for EUR, it remains limited in time. Once the investment is over, the flow is exhausted, it's a “one-shot”.

This temporary upward effect is more than offset by competition and falling corporate profits, which are eroding confidence and the long-term growth prospects of the Eurozone.

The Rotterdam Effect is a mechanism that maximizes Chinese imports. The Netherlands and Germany have a huge trade deficit with the nation. A constant and growing trade deficit implies a continuous net flow of EUR converted into USD or CNH to pay for goods. This constant supply of EUR on the Forex market, in exchange for CNH or USD, is putting fundamental downward pressure on the Euro.

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American and, above all, Asian companies (not only Chinese, but also Japanese, South Korean and South East Asian) no longer want the excessive risk of staying attached to a single pole. Europe, with its large single market and its rule of law, is becoming the preferred destination for the diversification of supply chains.

The positive note is not so much the absence of risks, but rather the possible — as much as desired — reaction of Europe to the pressure between the United States and China, by gaining strategic autonomy.