China eases, market uneasy China eases, market uneasy China eases, market uneasy

China eases, market uneasy

John Hardy

Head of FX Strategy

Summary:  China announced a coming cut to banks’ reserve requirement ratio (RRR) to support liquidity, but Asian markets generally failed to put a positive spin on this development and markets are uneasy coming into this week after the weak close on Wall Street Friday.

China’s move overnight to cut the RRR for banks was taken more as a sign of weakness than as a sign of hope that the situation in China will soon be on the mend. After last week’s national holiday, China’s equity markets opened with a gap lower that outpaced the declines in the main DM markets, although if we look over at the USD-denominated MSCI EM index, it is pushing on the lows for the cycle. As well, China’s currency is under renewed pressure, with the USDCNY at the 6.90 level, above which it only achieve one daily close before China stressed again that it wouldn’t pursue devaluation as a policy. Market concerns will pick up if China allows the rate to drift above 7.00 in a regime of broad USD strength to avoid CNY strength against the non-USD basket.

Markets remain uneasy after US bond markets closed on a weak note on Friday, further cementing the recent break higher in yields above key levels for 10- and especially 30-year over the last week. Markets will be left stewing a bit today as it is a US bank holiday in which the bond market won’t trade during market hours while the stock market exchanges will be open.

Italy’s Di Maio has mounted an effort to wrest some of the spotlight from his coalition partner Lega’s Salvini with a number of rhetorical broadsides against the EU’s budget rules. Over the weekend, he declared that the EU would see a popular upswell of resistance against austerity next year that would change attitudes across the bloc after the EU parliamentary elections (late May). Italy’s yields have jumped again this morning and are providing fresh existential stress on the euro. The EU side has remained critical of Italy’s budget plans even after a few positive comments last week, when the Italian side suggested that 2020 and 2021 deficits would be smaller than the one planned for 2019.

An earthquake in Brazilian politics as the right populist handily outperformed pre-election polls and narrowly missed getting an outright majority in the first round, polling at 46%. Brazilian assets and the real are celebrating the prospects of a likely Bolsonaro victory as his platform is seen as far more market friendly. Bolsonaro is a right-populist, law and order candidate appealing to traditional values and strong arm tactics. Very tough work lies ahead for the country in getting its fiscal house in order, especially the thorny issue of an overgenerous pension system. Given the weak EM backdrop, the real rally is impressive, but we wonder how long it can extend from here.


Widening Italy-core yield spreads driving euro weakness this morning and we continue to watch EURJPY for signs of a breakdown as we trade near the recent lows and the 200-day moving average. A close below 130.00 starts to look like a break down leading to a probe of much lower support.

Source: Saxo Bank

G-10 rundown

USD – broad strength after last week’s hawkish turn from Powell and the lifting of the long end of the yield curve. A strong USD from here will wreak havoc.

EUR – the 1.1500 level in EURUSD is the local bull-bear line as we gauge whether Italy’s yields remain orderly here or provide fresh pressure on top of the broad USD strength.

JPY – the JPY in an awkward place, normally weak on global bond yield rises, but supported by weak risk appetite. As well, yield rises aren’t necessarily JPY negative if market gets the sense that BoJ’s commitment to yield-curve-control is faltering. Watching EURJPY with interest here as noted above.

GBP – the sterling rally late Friday turning tail a bit here as traders are perhaps reluctant to hold positions for long, fearing the next headline. But UK rates are on the rise and GBP-supportive until proven otherwise. EURGBP 200-day moving average was broken Friday and comes in around 0.8840.

CHF – EURCHF looked like it wanted an upside break, but it will have a hard time finding one as long as EU existential pressure from Italy is ratcheting higher. Suspect that EURCHF would be trading even lower were it not for the powerful GBPCHF rally last week likely driving some CHF flow.

AUD – concerns that China’s policy easing is a sign of weakness could continue to weigh on the Aussie, where the only counterargument to further Aussie weakness is in market positioning. AUDUSD at 0.7000 likely an important psychological level from here.
CAD – USDCAD bears look to be suffering a full reversal of the break down below 1.2900, especially if it rallies up and closes through 1.3000. 

NZD – a bit of relative weakness versus the AUD, but AUDNZD only gets technically interesting for upside interest above 1.1000.

SEK – EURSEK backfilling well above 9.44 as SEK doesn’t tend to do well when the the euro is faring poorly. The chart looks bearish on the rejection of the 10.70 area, but conviction for SEK bulls starts to wane if we can’t get a follow up sell-off going in coming sessions. Sweden’s CPI release on Thursday the key event risk for the week.

NOK – oil backing off sharply works against NOK’s favour, though we remain constructive on the currency from a valuation perspective as long as global markets don’t lurch into a risk-off meltdown. Norway latest CPI release up on Wednesday.



The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. 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, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.