Today marks a start to new round of high level talks between US and China. The discussions are expected to lay the groundwork for a new era of  cooperation, not confrontation between the two countries. President Obama called it a “relationship likely to shape the 21st century”. With this in mind, closer cooperation in important areas was critical for the world, even if they can’t agree on everything.

While a lot issues are going to be on agenda, my particular interest lies in economic matters. And not all of them, either, but the ones directly impacting currencies. Here, as we all know, the US-China relationship is very complex. Beijing is the largest holder of US debt, having just recently surpass the $2 trillion mark in foreign reserves. At the same time, they are the most vocal proponent of “new” reserve currency, even at a risk that should this actually happen, their dollar holdings could fall in value. As a member of BRIC countries, China is trying to push Renminbi as an alternative to USD. I think they are missing something here- what is the point of substituting fiat money with another “by decree” offering? I’ll leave it for another time.

We all know, that Washington accuses China of currency manipulation, claiming that Remninbi is kept at artificially low level. Interestingly enough, this subject will be passed on, once again. Seems that our side is very reluctant to bring it up for whatever reason. My guess is US financial authorities want to convince Beijing to keep financing our debt. For now at least, even though it is more than a little embarrassing.

Both sides have been praising each other for fighting global recession. China seems to be out of the hole, with latest economic numbers on the upswing. Treasury Secretary Geithner is trying to take advantage of it. He is suggesting that Beijing should play a major role in restoring global growth by continuing to encourage more consumption at home and exporting less. Isn’t it what we are doing? Spending as much as possible? I doubt our results are convincing enough for China to follow. Besides, it was already expressed that any additional spending inside China would be largely on infrastructure. This limits the scope of any potential import expenditure.

Talks are set to last couple of days, under the name of “U.S.-China Strategic and Economic Dialogue”. I seriously doubt that anything truly groundbreaking will be accomplished, but it is possible that an announcement of some sort of agreement could move the USD and possibly JPY, which is often a “substitute” for CNY. Since both of these currencies have been sliding lately, you know, on “increasing risk appetite”, I’d expect some strength based on the talks, if anything at all.

Yesterday I was contemplating EUR-CAD trade.  Plan was to buy it at 1.5488 seeking 100-110 pips move. This is how the chart looks right now.

Not all that much has changed. Price remains between my buy point and the Friday low. Unless it makes a new low, this order is valid. One shouldn’t be surprised if this sideways pattern continues for another 1-2 days and new lower low is established. In this case I’ll simply move the buy order lower.

New Zealand Dollar has shown some weakness today. After days of consolidation AUD-NZD broke to the upside in a decent size move for the pair and time scale (1H chart). At this point I don’t know if this is just a fluctuation or perhaps beginning of an intermediate term move. Need confirmation in other pairs. Since I’m “fishing” here, to a degree, no strong set up is present as of yet, I’ll focus on slower moving crosses, like NZD-CHF. For now a sell order was placed at 0.6994, with a very modest target of 50 pips. If this succeeds, I will take a look at 4H chart and see if something bigger is possible.

Mike K.