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Aug 18 - 11:55 AM

EUR/USD - COMMENT-EUR/USD Can't Break Free Of China, Fed

By Christopher Romano  —  Aug 18 - 10:00 AM

EUR/USD struck a fresh 1-1/2-month low Friday as investors shunned riskier assets, and lower levels seem likely as the pair's negative correlation with USD/CNH appears intact and may remain so unless China gets serious about stimulating its economy.

The negative correlation between EUR/USD and USD/CNH broke down in early June but re-engaged in late July.
As USD/CNH rallied, EUR/USD fell by as much as 3.8%.

EUR/USD's slide extended despite efforts from the PBOC and Chinese state banks to buoy the yuan, which are having only a limited effect.

The euro zone economy, which is dependent upon China, and the euro currency are likely to remain vulnerable unless China implements concrete plans to fuel economic growth.

Gains in U.S. Treasury yields US2YT=RR add to the bearish pressures on EUR/USD.
The gains, driven by upbeat U.S. economic data and expectations the Fed will remain higher for longer, increased the dollar's yield advantage over euro.

U.S.-German 2-year spreads US2DE2=RR are poised to widen further and may do so should Fed Chair Jerome Powell indicate hawkish policy is likely to remain when he speaks on the economy at the Kansas City Fed's Jackson Hole event on Aug.

Should China fail to deliver stimulus and the Fed lean hawkish, downside risks for EUR/USD will remain.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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