China´peg and the US warning

[commanderco]

WASHINGTON (MarketWatch) -- The Bush administration has given China six months to take a concrete, large step toward a flexible exchange rate.

In its semiannual currency report released Tuesday, the Treasury Department did not make a formal finding that the Chinese government manipulated the exchange value of the yuan for export advantage.

But the report warned China that it has six months, until the next currency report is due, to move to a more flexible exchange rate or be designated as a currency manipulating country.

"If current trends continue without substantial alteration, China's policies will likely meet the statute's technical requirements for designation," Treasury said.

When the peg was installed in 1994, the DX was trading slightly above 90. The peg hung on up to 120, back down to 81 a few months ago and is still there today at 86 .... around 5% away from it´s installment .
What ever game Washington is dreaming up it has nothing to do with the peg being the root of all evil.
Rather they are looking to China as a solution for the debt bomb that the Fed has unwittingly installed into the monetary system by trying to solve problems with problems.
Any schoolboy can describe at length the dangers of the "compounding error"
However on the bright side for all Forex Traders lies volatility, more volatility and yet even more volatility.
The breakfast foods of champions!!....... yum yum

 

[commanderco]

Wont any one come out and play

 

[commanderco]

All a bit meaningless really, in the context of current events.

Couldnt agree more GJ

As I type this, USD/JPY is trading where it was trading on Friday afternoon (low / mid 107's).

GJ it always will be trading at some level or other, unless it is making all time Highs or Lows.
Since Friday afternoon the June JY has provided a nice long and a scratchy short to get back to Friday´s level .... volatility

 

[commanderco]

Sure, but my basic point was that if this was really news, usd/jpy would have moved substantively, rather than be trading back where it was a week ago.

but of course most of the time the market ISN'T at all time highs / lows. That's just not what I meant.

GJ I think I understand you now.
I dont like sustantial moves .... I am a momentum Trader

 

[Blithe]

The Chinese Revaluation - Yet Again!

Hi All,

The Chinese reval has been discussed on and off several times in the last year. Understandably, the market reaction is getting more and more muted. Here's a few things of note, apologies if it is all too obvious for the readers.

Well, as rightfully said on this thread the deficit worries led to USD selling and Europe was taking the brunt of USD selling - and when people where talking 1.50 in EUR the central bank was getting concerned - and why not? Japan was doing overt and covert intervention, and everybody had an excuse not to see their currencies strengthen - for US it was growth and deficit, Europe pointing to Japan, and for Japan, it was years of stock market crashes and the pegging by Chinese, leading to greater competitive advantage for China within Asia. China was the exception, seeing as their economy is seen to be overheating even when the rest of the world was staring down the barrel of recession.

So came an ingenious way to stem the fall of USD solely against Europe - bring up the Chinese bogey. This, along with the interest rate favouring USD and green shoots of US recovery have by and large stemmed the rise of EURUSD. Trichet has oft expressed the desire to see Asia take up some part of the slack from the USD story. And with this level of attention, understandably China has come up for criticism in pretty much every forum for not letting Asia leave the market to determine their currencies' valuations. This has huge implications even in other financial markets, as USD buying by central bankers is often pointed out to be one of the key reasons for the US yields staying so low.

But well, the market is doing its bit. Every time they announced such rumours, the Yuan forwards and Hong Kong dollar were used as instruments to buy the rumour and sell the fact. USDJPY was also to some extent used, with hardly any conviction.

Even if the Chinese were to revalue, my take is that they will let it devalue in stages, with a tight band, suiting their convenience, not that of the US. For instance, they might let it devalue in stages of 2% with tight bands if less than 1% on either side to discourage speculation. So a deval of 6-8% might take ages if at all targetted. Hardly any chances of free float in the foreseeable future, in my humble opinion.

As a parting thought two news items from yesterday

Hong Kong introduces ceiling on its Dollar.
South Korea announces it will not intervene in forex markets any more.

Go figure

Blithe