The Chinese yuan is in focus as markets weigh whether its recent, steep decline represents a mere cyclical downturn or whether Beijing is preparing to move its currency determinedly lower in the face of the US-led trade war.

According to Saxo head of FX Strategy John Hardy, traders need only look back to August 2015 to see what a major yuan revaluation can do to world markets.

"The market's assumptions regarding CNY have been complacent so far," says Hardy, who cautions that this may not remain the case as the trade war intensifies.

In equities, an ugly Asian session set the risk-off tone for the day with Saxo Head of Equity Strategy Peter Garnry noting that "there are no earnings or macro releases to lift stocks at this point".

As well, Garnry reports that pressure remains on emerging market stocks as the dollar surge survived a key support test in the low 1.17s in EURUSD terms.

Looking to the fixed income space, Saxo bonds specialist Althea Spinozzi says that Treasuries are trading sideways on conflicting trade war news (the Trump administration took a more conciliatory tack last night, softening its stance on inbound investment) while Italian BTPs remain in focus as the populist government has strengthened its position following the second round of municipal elections.

Finally, Hardy reports that the NZD is at cycle lows ahead of the upcoming Reserve Bank of new Zealand meeting with a break of the 0.68 region versus USD potentially leading to a five Big Figure downturn.Please add your article content

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Chart: NZDUSD                                                                                                                                    Source: Saxo Bank

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