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BUZZ-COMMENT-Only one risk for USD/CNH shorts, but it's a big one

Credit: REUTERS/Thomas White

One major risk that the yield-hungry, yuan-buying masses [nL1N2FT05Z] are ignoring is the possibility of military conflict between the U.S. and China. While this appears too remote a risk to price in, the needle on the geopolitical stress meter is starting to move again.

Aug 27 (Reuters) - One major risk that the yield-hungry, yuan-buying masses are ignoring is the possibility of military conflict between the U.S. and China. While this appears too remote a risk to price in, the needle on the geopolitical stress meter is starting to move again.

On Tuesday Beijing accused the U.S. ofspying on its military exercises . Chinese maritime drills are being conducted in three seas concurrently , and two medium-range missiles were reportedly launched into the South China Sea on Wednesday, in a warning to the U.S. .

There are increasing signs that escalation can be expected , with much riding on U.S. Defense Secretary Mark Esper's planned trip to China. The Pentagon chief wants to de-escalate with increased communication, to avoid mishaps that might trigger confrontation in the Indo-Pacific region, and perhaps even across the Taiwan Strait . But he's treading a tightrope as President Donald Trump continues to make China the bogeyman in his re-election campaign.

Assuming Trump is not betting on a war to improve his chances of staying in office, the yuan could keep appreciating , even with positioning appearing a bit stretched . But for those who already have skin in the game , booking some profits near this year's low of 6.8460 would be prudent.

For more click on FXBUZ

AsiaFXposition: https://tmsnrt.rs/2EGDTMV

CNH: https://tmsnrt.rs/2YDgUK0

(Ewen Chew is a Reuters market analyst. The views expressed are his own.)

((ewen.chew@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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