While the euro is gradually recovering after a major sell-off observed for most of this month, recent data shows that the latest round of EU sanctions has targeted a number of Chinese companies and banks, prompting Beijing to protest and promise a response to protect its own companies.

On Friday, the European Union imposed sanctions on two Chinese banks and five China-based companies as part of its latest package of sanctions against Russia. These measures, aimed at preventing sanctions evasion, triggered a sharp reaction from Beijing and further strained EU–China relations. In its response on Monday, China's Ministry of Commerce stated that the sanctions had severely damaged trade, economic, and financial ties, and that it would take necessary steps to protect the legitimate rights and interests of Chinese companies and financial institutions.

The ministry's statement emphasized China's determination to resist external pressure and defend its economic interests. Specific countermeasures are expected to be announced soon, potentially including restrictions on European companies operating in China.

This is the first time Chinese banks have been added to the EU sanctions list since 2022. According to the European Council, Heihe Rural Commercial Bank Co. and Heilongjiang Suifenhe Rural Commercial Bank Co. were sanctioned for providing cryptocurrency-related services, which the EU believes violated the purpose of existing sanctions.

Previously, the EU had proposed adding these institutions to a list of financial entities allegedly assisting Moscow by processing transactions or providing export financing for trade deals that circumvent EU restrictions. However, as noted above, China promptly protested the proposal once it became public. In June, Chinese Foreign Ministry spokesperson Lin Jian stated that normal exchanges and cooperation between Chinese and Russian companies comply with WTO rules and market principles, are not directed against third parties, and should not be disrupted or interfered with.

According to the South China Morning Post, earlier this month Chinese Foreign Minister Wang Yi vowed to take retaliatory measures if banks were added to the list. China's close ties with Russia had already led to similar sanctions from the U.S., prompting banks to reassess their operations and client bases. Some Chinese state-owned banks tightened restrictions on financing Russian clients early last year after the U.S. imposed secondary sanctions on foreign financial institutions.

As reported earlier, in February 2022, Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. took steps to limit financing for Russian commodities, even though Western sanctions at the time did not yet target Russia's energy sector. The country's largest state-owned banks also have experience complying with past U.S. sanctions on Iran and North Korea to avoid losing access to the U.S. dollar clearing system.

This incident highlights the growing complexity of the geopolitical landscape and the risks companies face when operating under sanctions. However, the EU's actions have raised concerns among other countries that fear similar measures and their impact on the global economy. An escalation of the trade conflict between the EU and China could lead to further fragmentation of the global economy and reinforce protectionist trends. The path forward will depend on the willingness of both sides to engage in dialogue and seek compromise.

As for the current technical outlook on EUR/USD: Buyers now need to focus on reclaiming the 1.1700 level. Only then will a test of 1.1720 become feasible. From there, a move toward 1.1750 is possible, though achieving that without support from major players will be quite difficult. The furthest target is the 1.1780 high. In the event of a decline, I expect significant buyer activity only near the 1.1666 level. If there is no response there, it would be reasonable to wait for a retest of the 1.1640 low or consider opening long positions from the 1.1615 level.

As for GBP/USD: Pound buyers need to break through the immediate resistance at 1.3500. Only this would allow a push toward 1.3540, a level above which further gains will be difficult. The furthest target is the 1.3580 level. If the pair falls, bears will attempt to regain control around 1.3460. If successful, a break of this range would deal a serious blow to the bulls' positions and push GBP/USD toward the 1.3435 low, with the potential to test 1.3400.