Moody’s has downgraded China’s credit rating outlook to negative.

“Without credible and efficient reforms, China's GDP growth would slow more markedly as a high debt burden dampens business investment and demographics turn increasingly unfavorable. Government debt would increase more sharply than we currently expect. These developments would likely fuel further capital outflows,” Moody's explained.

Moody's also warned it could downgrade China further if it sees a slowing down of reforms needed to achieve sustainable growth.

Chinese companies are among the most indebted among all emerging economies and their debt represented in January more than 160 percent of Chinese GDP, according to COFACE (Compagnie Française d'Assurance pour le Commerce Extérieur). COFACE is an important globally operating credit insurer and in France manages public export guarantees on behalf of the French state, acting as France's Export Credit Agency.

Interestingly, the Chinese equity markets digested Moody’s concerns about debts and reform and reacted with all the normal reverence markets most of the time show towards the opinions of credit rating agencies, which in clear language means markets have largely ignored the warnings and Chinese equity markets are all in the green.

Again, this is one of those moments where complacency sets (temporarily, of course) the rules of the game.

Back in the U.S. we have the release of the Fed’s beige book, which can be a useful guide as to reports about “pricing” power in particular. This comes in the wake of a relatively sudden increase in the core PCE deflator, which is the Fed’s favorite price gauge. It rose by 0.3 percent on a monthly basis in January, which was its strongest upward move in 4 years, and by 1.7 percent year-over-year (y/y), which was its highest reading since July 2014.

For investors, it could also be good taking notice that notwithstanding the “y/y’ PCE deflator as of January stands at 1.3 percent, the core PCE stands at 1.7 percent and the effective Fed funds rate stands at 0.34 percent. Markets remain convinced, at least until now, the Fed is not going to act in March. Prices also suggest markets are also not expecting any Fed tightening at all this year, which seems, at least to me, a very unlikely response for a responsible Central Bank.

We also had an interesting letter by ECB President Mario Draghi to the European parliament where he says euro zone growth and inflation prospects have weakened and the ECB's March policy decisions will need to take into account the deteriorating outlook. Euro area inflation on a yearly basis went negative to -0.2 percent on a yearly basis in January.

When we look at the core PCI numbers of the U.S. and the euro area, we see the divergence has widened to levels we have not seen since the great financial crisis of 2008.

For investors, this is important because this will probably be one of the basic reasons the euro should re-adjust to the downside against the dollar over the short term. Of course, nothing is written in stone.

We have also seen that the benchmark yield gap between 2-year U.S. and German government bonds has widened out in favor of the dollar. Coming from a gap of 116 basis points (bp) on February 8, it now stands at 135 bp, which is about the widest gap since late December/early January and, before that, since August 2006.

When we take into account the latest positioning data of euro-shorts as communicated by the Commodity Futures Trading Commission (CFTC) that has now come down to 46,857 contracts where in March 2015 we had a record short position of 226,250 contracts, it’s certainly not an overstatement to say we are closing in on a reversal moment where the rising gap in yields between German and U.S. bonds will turn out in favor the dollar.

In simple words, we shouldn’t be surprised to see the euro moving lower again against the dollar over the next few weeks and parity and even below parity.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.