BUZZ-COMMENT-China's currency is the key to FX traders fortunes

Credit: REUTERS/DADO RUVIC

China's CNH has had an instrumental influence on traders' biggest bet, EUR/USD longs, and with those bets still enormous CNH's path remains crucial. [nL1N2H705W]

Oct 16 (Reuters) - China's CNH has had an instrumental influence on traders' biggest bet, EUR/USD longs, and with those bets still enormous CNH's path remains crucial.

When EUR/USD soared earlier this year it did so on the back of a CNH drop. After July, CNH began to rally and EUR/USD's rally stalled. The CNH has now regained almost all its earlier decline. Despite bullish expectations and a seemingly unchanged technical and fundamental picture, EUR/USD has failed to rise, and part of its failure is due to its heavy weighting in China' currency basket.

With CNH close to a more than six-month high just before the release of data that's expected to see China's economy pick up pace when Europe is in the grip of a second wave of the coronavirus, it seems likely that even bigger CNH gains will weigh even more heavily upon EUR/USD.

The probability of bigger position adjustment will rise nearer the end of the year and the likelihood of a higher CNH is growing.

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Trade weighted CNH and EUR/USDhttps://tmsnrt.rs/2SXg0Vg

(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)

((jeremy.boulton@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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