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The following is from Societe Generale as provided via eFXPlus:
If USD/CNY Hits 7, EUR/USD Would Break 1.11 & USD/JPY Would Return To 109
Societe Generale Research discusses the current market conditions amid the heightened US-China trade tensions.
"Politics drives FX markets: EU elections loom, US/Chinese relations have soured. The breakdown of US/Chinese trade talks doesn't help and the rally in USD/CNY doesn't either. Wound-licking is the order of the day on this one," SocGen notes.
"If USD/CNY heads purposefully towards 7, we doubt EUR/USD can avoid a break below 1.11 this week, and indeed, a return to USD/JPY 109 is likely too.
It would be dollar (and yen) bullish and risk (and EUR/USD and EMFX) bearish if it were to happen, however. If EUR/USD breaks lower, GBP/USD will surely follow suit in the current climate," SocGen adds.
First appeared on eFXPlus on May 20 - 09:19 AM
The comments follow after the latest deterioration of the US-China trade negotiations and general escalation on the trade front with the Huawei case and new tariff hikes from both sides.
The Chinese currency tumbled in response to the trade developments (USDCNY moving higher). It is generally bad for risk sentiment which means USD, JPY and CHF would be the primary beneficiaries.
The Australian Dollar is also highly correlated with its Chinese counterpart, so AUDUSD would also be hit hard if USDCNY moves to 7.00.
The USDCNY exchange rate has not traded at the 7.00 level since 2008.
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