Things have turned from bad to worse on the trade war front after China has reportedly told state buyers to halt all agricultural imports from the US. So Fashioning views on the outcome or duration of the US-China trade dispute have cleared up immensely on this headline which suggests the return of tit-for-tat trade moves and a suspension of trade talks.
ON top of that, currency markets are in complete disarray after USD/CNH breaks above 7.00 and jumps to 7.11 in a risk-off move after the lower USD/CNY fix.
After discussions over the weekend, the PBoC likely sees no urgent need to keep RMB stable any more in the near term and 7 is no longer a line of defence, so traders are positioning with expectations of a much higher Fix tomorrow.
This rapid Yuan depreciation move is being echoed across G10 FX, with yen crosses, AUD and NZD rapidly adjusting lower while its jump first into Gold and ask question later as the thought of a currency war are crossing more than a few traders' minds.
Today CNY Fix above 6.90, a level which has been strongly supported throughout May and Jun trade war escalation is being considered a mnemonic signal that the exchange rate may not necessarily be shackled to 7.0 level.
Today's move is catching more than a few traders by surprise who is under position and were likely expecting a more ambiguous fix , but at 6.92 the bag is out of the hat at least for today
But the Yuan is a managed float, and we need to gauge the amplitude of today sell-off in the context of the rest of the week's fixes and possible interventions before drawing any definitive conclusion, but in the absence of such, the first level to watch is 7.20
Oil Markets
So far the response has been mild on oil markets, but this latest headline risk does suggest both sides are digging in for the long haul and its unlikely OPEC supply discipline will provide an adequate counterbalance to these escalating trade tensions which could weigh like an anchor on oil prices this week.