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EUR/USD Daily Forecast – Rally Stalls as Trade War Fears Lessen

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Chinese yuan consolidates losses

It’s not often that EUR/USD traders look to the Chinese exchange rate for clues on where the single currency might go next, but such is the case this week as the trade battle between the US and China is dominating the financial markets.

Initially, it was a tweet from the US president about more tariffs that spooked the financial markets. A drop in the yuan below the key 7 level versus the greenback back intensified fears.

The decline in the Chinese currency stirred up speculation that China is fighting back by devaluing the yuan. However, it seems that there is an attempt to contain the drop in the yuan as the exchange rate has fallen into a range.

I think it is important to have a correct assessment of sentiment here. While equities have bounced back and the dollar decline looks like it has stalled out a bit, I don’t think the backdrop has changed in such a manner that warrants a reversal to erase the price action across financial markets in the early week. At least not in the 

Although there was an intraday push above the resistance level, the pair closed below it on an intraday basis. Not only that, a doji candle was posted in the process which signals exhaustion and builds towards the case for a pullback.

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Valuations for India have become a lot more attractive, says Dan Fineman of Credit Suisse

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Credit Suisse has upgraded Indian equities to 'overweight', up  from 'market weight'. Dan Fineman, co-head of equity strategy for the Asia Pacific region at Credit Suisse, shared the rationale behind this upgrade.

"India may be a relative outperformer rather than producing a strong positive return," Fineman said in an interview with CNBC-TV18.

“We are quite cautious on the region as a whole for the second half of the year. Valuations for the region as a whole are no longer cheap as they were,” he added.

“India though has some appealing features and I feel pretty confident it will outperform at least on the downside and might produce some absolute positive returns.”

According to him, valuations for India have become a lot more attractive.

“India tends to outperform in times of falling global interest rates and global monetary easing especially with the latest escalation of the trade war we probably will be seeing continued downward pressure on rates and easing from global central banks,” added Fineman.

Talking about the renminbi, he said, “I do not want to give a hard forecast but I will note that our economic team has calculated that if China were to try to offset all of the damage from the tariffs which Trump might be imposing in September on the remaining $300 billion worth of Chinese exports, the renminbi would have to go beyond 7.20/dollar to 7.25/dollar.”

About the MSCI India index, Fineman said, “We have an index target for the region as a whole of 2 percent for the second half of the year that was said before the latest escalation of the trade war; there is downside risk to that forecast.”

“India should do a bit better than the region as a whole. I do not think we can expect double-digit returns by any means, it would be too difficult of an environment unless we have some positive outcome on the trade war. We are looking more at something in the low single digits or mid-single digits,” Fineman added.

RBI cuts rates by 35 bps, a bigger-than-expected cut (USD/INR stays below 71.00)

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Addressing growth concerns by boosting aggregate demand assumes highest priority at current juncture.

Transmission of policy rate cuts to weighted average lending rates on fresh loans has improved marginally since June.

Impact of monetary policy easing since February expected to support economic activity going forward.

Inflation projected to remain within target over a 12-month ahead horizon.

Aggregate demand, investment activity remain sluggish.

To take measures to enhance credit flow to non-banking finance companies.

The Rupee remains under pressure on a bigger-than-expected rate cut announcement, with USD/INR flirting with multi-month highs near 71.00.

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