CNY: The Yuan devaluation should lead to a decline of the EUR/USD (BNP)

Here are BNP bank's comments regarding the Yuan devaluation:

1 - Since the CNY tends to carry the Asian currencies in its wake, it is natural that the CNY decline is associated with the weakness seen in other Asian currencies.

2 - This trend is expected to spread to other G10 currencies such as the AUD, NZD and JPY. Most likely, official intervention on the JPY will be implemented to limit its decline. Australia and New Zealand will probably welcome a decline of their currencies.

3 - Asian central banks will intervene to slow the decline in their currencies rather than try to reverse the trend.

4 - Portfolio balancing will require selling of the EUR/USD pair.

5 - The current decline in the dollar may be related to the fact that markets are postponing their expectations in terms of higher policy rates. But this should not call into question the dollar's bullish trend.