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MS See Value in Long 3m EUR/CNH Put Spread

CNY
  • On the CNY, Morgan Stanley write that they believe that the CNY could see a tactical rally should tariff reductions happen. As a result, they like a long 3m EUR/CNH put spread position.
  • The eagerness to reduce tariffs from the Biden administration is well known. However, there are a few comments from the administration that are worth highlighting. First, Yellen said that tariff reductions could happen in the coming weeks. Second, Biden said that his administration is in the process of considering a tariff cut last Saturday.
  • On the potential impact for CNY, they write that should POTUS decide to reduce tariffs by US$10 billion, it would push CNY 1.8% stronger based on the US$580 billion of China exports to the US in 2021, all things equal.
  • They believe that CNY's sensitivity to tariff reduction this time should be lower but CNY should appreciate should tariff relief happen.
  • Resultingly, they add a long 3m EUR/CNH put spread with a potential 3x payout as well as a limit order of long SGD/CNH at 4.75 to reflect their medium-term cautious view.
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