So here we have it: the big Forex news over the weekend was the announcement by China to end the 2 year old peg of Yuan to the US Dollar. The statement comes before the meeting of G-20 heads of states, where the currency issue will likely be brought up. Perhaps not as forcefully as it should, but it will. Now, we don’t know when the peg will end and, in history is any guide, after the meeting China will come up with a reason to prolong it for as long as possible. Just as they’ve done so many times in the past…
Our Treasury Secretary Geithner is very happy with this development and calls for “vigorous implementation”. Well, good luck Mr. Secretary. Your leg is being pulled, once again, and you put on a happy face. Chinese officials are already setting a target of 1.9% appreciation for the rest of the year, which is laughable on one hand and a slap on the face on another. Here is a thought - since China complains so often about the Dollar being the reserve currency, why not do right thing and allow the Yuan to become one. Of course, it would have to be floating first…Freely floating. Not ready to assume the responsibility? We thought that much.
It will be interesting to see, if Chinese “pledge” has any impact on currencies when the markets open in few hours. After uninspiring Friday, one would expect very soft opening, unless strong news emerge. Nothing so far, the Yuan announcement could be one, but it remains to be sees. At any rate, Japanese Yen pairs could be first to move.
In the EUR-JPY we can still wait for a breakout from this fairly wide range, which should determine direction of next swing. This zone between 113.30 and 111.60 can be played both ways on shorter term charts. But for any larger moves, breakout is the key, for a move of 120 or so pips. The opening and potential gaps could provide additional clues.
On a longer term chart, the daily graph of GBP-NZD looks interesting. It is possible that this cross is in a process of building a bottom reversal pattern of some importance. If this is the case, one could be on a lookout for a strong bullish candlestick to emerge at current level or perhaps 100-200 pips lower. That could create favorable buy situation, risking maybe 400-500 pips, while targeting perhaps as many as 1000 pips. Situation is far from clear and no trade is imminent, but next 1-2 weeks might bring changes here. Something to keep in mind. Now waiting for the opening. Early quotes suggest increased volatility.
Mike K.
Not much faith in Chinese promises, have you? And I agree. They’ve been renagging on everything far too long to be taken seriously. If they let the Yuan appreciate by just couple of %, what good will that do?
Like youe twits, mate. World cup kicks ass, right?
Norm, they are giving everybody a crumb, instead of the cake everybody wants. Today everybody is happy, but the reality will set in within few days.
I’m having a blast, Alex. How about you?
If only bloody England started to play better, I’d be happier. Still, good times…
Thank you for the info, Mike, it is very usefull. Do you consider today’s gaps “playable”?
Yes, they are. Focus on the biggest ones, like GBP-AUD and wait for reversals on short time frames. I’ll go over that in next post.
Italy held to a draw by New Zealand, I’m shorting EURNZD lol!, as a South African its interesting to see foreigners blowing vuvuzelas …. I think Brazil will take this one.
I loved that game! People are complaining about vuvuzelas, claimimg they ruin the world cup atmosphere. Wrong, they create the atmosphere of THIS World Cup.
[...] the markets opened after the weekend, the result of Chinese currency announcement was immediately visible. Un-pegging from the US dollar was interpreted as positive sign world wide. [...]
[...] the markets opened after the weekend, the result of Chinese currency announcement was immediately visible. Un-pegging from the US dollar was interpreted as positive sign world wide. [...]
[...] the markets opened after the weekend, the result of Chinese currency announcement was immediately visible. Un-pegging from the US dollar was interpreted as positive sign world wide. [...]