EUR/USD longs dealt another downside risk
Oct 8 (Reuters) -EUR/USD fell back to flat on Tuesday, erasing earlier gains after China failed to meet market expectations for stronger fiscal steps to support the nation's economy, darkening the euro's outlook.
China's National Development and Reform Commission announced support of $28 billion for local governments, which left markets unimpressed. China's yuan rallied against the dollar CNH=D3 and Hong Kong stocks .HSI fell sharply after the announcement.
China is one of the euro zone's largest trade partners and the lack of significant stimulus from Beijing is a concern for investors worried about European growth.
EUR/USD traders are likely to continue watching for signs of more stimulus from Beijing, absence of which would fuel concerns that lack of renewed demand from China will spill over into euro zone GDP.
That, in turn, would raise expectations that the ECB would cut more aggressively than markets are currently discounting FEIZ5.
In such a scenario, German-U.S. spreads US2DE2=RR and terminal rate spreads for the Fed SRAM26 and ECB FEIH5 could widen, increasing the dollar's yield advantage over the euro, thus pushing EUR/USD lower.
For the time being, EUR/USD longs are now focused on U.S. inflation, with September CPI and PPI reports due later this week. They could get some relief if U.S. inflation were to come in below estimates, which might lead rates markets price in deeper cuts from the Fed.
For more click on FXBUZ
(Christopher Romano is a Reuters market analyst. The views expressed are his own)
</body></html>Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
