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Hardy: Trading China rate cuts and EUR falls

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In a surprise move, China has cut its rates for the first time in two years. Its lending rate is now 5.6%, down 0.4% and its deposit rate is 2.75% after it was cut 0.25%.

While the markets have reacted positively, pushing risk-on currencies like AUDUSD and NZDUSD higher, Saxo's John Hardy says this is a sign that China is weak. He points out that Beijing had wanted to avoid adjusting rates in case it restarted the credit and housing bubbles. So Friday's move suggests that the Chinese credit crunch is very serious.

At the same time, EURUSD has fallen following a dovish speech by ECB President Mario Draghi in which he strengthened his pledge for stimulus. Hardy says his address has left the market second guessing what exactly the central bank will do next to deal with the sluggish Eurozone and the weak inflation outlook. He says combined with the Chinese news, it's no wonder traders are buying risk-on currencies and selling the Euro.