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Chinese Yuan Tumble a Signal for Yet Another Global Flash Point

Chinese Yuan Tumble a Signal for Yet Another Global Flash Point

John Kicklighter, Chief Strategist

Talking Points:

USDCNH has surged to within reach of a two-year high

• China's economy is slowing under a managed effort, but its financial risks are greater threat

• While equities are still high and default premiums low, a wave of bad debt is coming

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In active markets, investors' attentions are focused on those themes that are moving markets now. However, just because a particular catalyst or trend is shaping markets doesn't mean it supersedes bigger themes that are yet untapped. Currently, the market is focusing on the ECB's recent QE adoption, the Greek election and the upcoming FOMC decision. Less pressing it seems are deeper currents like an excessive 'risk' positioning in global capital markets or growing financial cracks in the largest economies. A particularly important risk moving forward is China's ability to maintain its economic and financial stability. A managed economic slowdown may seem feasible, but can they exert the same level of control over growing market-based risks? We discuss China's risks and its potential influence over an increasingly suspicious global market.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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