In forex, the markets are watching a fixed game with the USD/Chines yuan (USD/CNY), leaving plenty of room for other better barometers to lead – like euro/Japanese yen (EUR/JPY). This may be the one that makes it a beach day or a bad day with 130.60 key, writes Bob Savage Friday.

For some investors, yesterday was a tipping point as President Trump delivered a rare criticism of the Fed, saying he hoped they would stop raising rates, complaining about USD gains and China.

This sent the USD lower as many see the US Treasury intervention risk in further USD gains as possible again – something that brings back talk of a Plaza Accord.

The focus on forex and rates continued overnight with China and the Chinese yuan (CNY) running to 12-month lows at 6.8128 only to find intervention over 6.80 and close up 0.1% to 6.7725 on the day. The correlation of CNY to China shares is extreme and the intervention lifted the Shanghai Composite notably today.

The European session opened with BTP back in focus as La Repubblica reported that League's Salvini and 5-Star Movement Maio are united against Finance Minister Tria's CDP leader nomination and have threatened to seek Tria's resignation, and also while Corriere Della Sera had an article quoting Claudio Borghi that he is convinced Italy will leave the euro (EUR) sooner or later.

Like CNY, BTPs reverse when 5SM Maio in an Ansa newswires denies clashing with Tria. While the Italy political back-and-forth drove readers of news, it also delivered volatility.

The question is whether this CNY or BTP movement matters just as many Thursday afternoon wondered if Trump’s USD and rate harangue matters.

Politics don’t matter until there is contagion and then disparate things correlate to one like the USD, China trade tariffs and Italian debt – and that is where today starts to be interesting – with the Asia junk bond market beginning to tip over tying into CNY levels and BTP pain.

The ICE/BoAML Asian junk bond index represents just $138.1 billion – but it’s trading 2% over the world average and now is over 9%. There are some who will ignore today and find it just another summer Friday, filled with less news, less trading and less reason to bend from just being passively long risk and ignoring politics for now.

Tipping points are that way, they surprise.

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