Société Générale (SocGen) sees downside risks for the euro (EUR) in September, potentially pulling other European currencies down with it. This outlook is driven by strong economic data from the US and lackluster indicators in Europe, along with the influence of China's weakening economy and yuan.

Key Points:

• US Economic Data: The dollar benefits from strong US economic data, including the ISM numbers that suggest a healthy labor market. This contrasts with relatively weak economic indicators from Europe.

• Impact of China: A weakening Chinese economy and yuan are not supportive factors for the euro’s strength.

• Effective Rates and Long-term Averages: Despite the euro's real effective rate being much lower, it's close to its long-term average. The EUR/USD average since 1999 stands at 1.19.

• Short-Term Outlook: Regardless of long-term expectations (SocGen forecasts EUR/USD at 1.15 in a year), the euro could experience downward pressure in September, dragging other European currencies along.

Trading Recommendations:

• Short Positions on EUR: Traders may consider short positions on the euro and other European currencies based on downside risks.

• Monitor US and China Indicators: Keep an eye on economic releases from the US and China, as these could provide triggers for market moves.

Implications:

For Traders:

• Risk Management: Those with long positions in EUR or other European currencies should exercise caution.

• Tactical Plays: Look for opportunities to capitalize on a potentially weaker euro and associated European currencies in September.

For Policymakers:

• Watch Global Influences: The economic performance in the US and China will continue to influence European currencies, and should be closely monitored.

Conclusion:

SocGen sees further downside risks for the euro in September, influenced by stronger US economic data and a weakening Chinese economy. Traders should consider these factors carefully, as the downward pressure on the euro could also impact other European currencies.