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FX & Equities: China Roils FX Markets

The relative quiet that usually marks the Asian FX session was shattered by surprising Chinese data and policy action. First, July New Loans came out at 1.48 Trillion Yuan which was almost double what the market was expecting and gave commodity currencies (AUD, NZD,CAD) and risk appetite a bid. This was followed by a policy act by China's central bank as they cut the Yuan's reference rate by a record amountThis seemingly dramatic step taken by China appears to have stoked fears of a protracted slowdown in the world's second largest economy, promptly taking the wind out of the antipodean's sail and sending them skidding lower.

The broader implications of this move are that currency wars might break out especially between the world's two largest economies. China's move sends a clear message that the powers that be will do whatever it takes to re-ignite growth and, even though they said this was a "one-off" move, they appear to have chosen the tried and true formula of currency depreciation to achieve said goal.

A sudden bout of dollar strength will have the deleterious effect of potentially derailing the momentum that the US economy had been building. This could be quite annoying for a FED that has been gearing up to begin the process of normalizing monetary policy. Of course, anything that disrupts the US economy will have wide ranging consequences for the global economy as well. It would appear that "things" just got a bit more interesting!

Ranges:{WWM's New ALPHA Trader - Charts [EUR, GBP, AUD, YEN, GOLD, OIL, DXY]}(click to enlarge)

FX 081115

Equities:{WWM's New ALPHA Trader - Charts [Dow30, SP500, Nasdaq100, Nikkei225, China, HKG40, Nifty50, ASX200]}(click to enlarge)

STOCKS 081115

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