User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Monday June 28, 2010 - 13:28:26 GMT
Black Swan Capital - www.blackswantrading.com

Share This Story:
| | Email

US/China Symbiotic relationship back in play?

Quotable

“The charm of history and its enigmatic lesson consist in the fact that, from age to age, nothing changes and yet everything is completely different.” —Aldous Huxley                                          
FX Trading – US/China Symbiotic relationship back in play?

You may remember that the US dollar soared in value in the midst of the worst fears during the credit crunch.  It peaked in March of 2009; which not coincidently is when global stock markets and risk assets began to soar in value.  It was the big quantitative easing moment from the Fed and an explicit signal the US policy was to use US dollar—dollar based credit—to liquefy global credit markets, i.e. a weak dollar policy indeed.  We have to be open to the idea we may revisit that period if US policymakers are cranking up the China/US Symbiotic relationship again.

US$ Index Daily: [Chart not available in text format.]

The ball game changed in December of 2009, as the US dollar bottomed and has been climbing ever since.  Global deleveraging and European monetary system concerns changed the backdrop for the buck. 

Key question: Was the sharp rally in the US dollar from December 2009 primarily a risk-bid based on eurozone trouble or was there more to it?  Answer:  We don’t know yet.  We think there was more, and laid out that definitive (though still guesswork) case in our January Currency Investor.  But it sure doesn’t appear the US can afford to drain reserves from the system now.  And despite fiscal fatigue as settled over the US electorate, we can’t underestimate the ability of the US government to keep pumping 24/7.

So, are we nearing a mini-version of the weak-dollar policy that led to a big retrace in the dollar move after the credit crunch, ultimately driven by China credit?  If so, the dollar correction could be deeper than we expected.

Despite some changes in correlations over the past several months, the dollar index move is still often tied to the mantras of “risk on” and “risk off.”  Risk on means, of course, there is plenty of liquidity out there -- time for investors to pour into risky assets, stretch for more yield, bid up growth, etc.  Risk off means just the opposite, and racing back out of risk helps the US dollar, US bonds, etc.

Let’s consider the liquidity spigots versus the drains.  Liquidity is the mother’s milk of risk assets, if the perception is the spigots are winning, risk assets likely go higher, supporting the idea of continued correction in the US dollar:

Spigots:

1)    European Central Banking – Quantitative easing out the yin-yang, but of course calling it another name; someone has to keep the European banking system solvent
2)    Bank of Japan – Loose money there as far as the eye can see
3)    US Fed – After the most recent economic downgrade of the US economy from the Fed, the idea they will start draining reserves anytime soon is history.
4)    US government – Though low on bullets, pipes are wide open
5)    Bank of England – Still in loose mode, though making noises about a change

Drains:

1)    Eurozone austerity measures – enough said
2)    UK austerity measures

Neutral, but leaning toward tightness:

1)    Reserve Bank of Australia
2)    Bank of Canada   

The Big Question: Is China’s new exchange rate policy considered a tightening? 

Some say yes, obviously it is an effective tightening.  But that’s not the answer according to the analysts who toil away at Morgan Stanley [our emphasis]:

Ever since Chinese policymakers started their resolute campaign against property speculation, markets have been worried about a policy error that could push such anti-speculation measures too far. Mindful of fears of a growth slowdown in China, monetary policy is likely to compensate for renminbi appreciation by delaying tightening or even by further easing on some measures. Our China economist, Qing Wang, previously expected just one policy rate hike in 2H10 and an adherence to the Rmb7.5 trillion credit ceiling for 2010. He now expects no rate hikes in 2010 and raises the possibility of an increase in the credit ceiling. Monetary policy is thus playing a much more accommodative role as interest rates and credit constraints together account for the bulk of monetary transmission into the real economy.

But monetary policy accommodation shows that the ‘trilemma' is alive and well: The trilemma is a three-way dilemma whereby policymakers can choose only two out of a trio of pegged exchange rate, free flows of capital and independence in monetary policy. The traditional approach of policymakers who want to have their cake and eat it has been to introduce capital and credit controls. Such a system of controls in China (including intervention in FX markets, sterilisation in domestic money markets and credit constraints) has kept capital inflows from influencing domestic credit but has led to an accumulation of a massive quantity of foreign exchange reserves. Managing these controls and reserves, however, gets more difficult as time passes and they do not represent a sustainable solution. The textbook model can lead one to believe that the trilemma exists only for exchange rate regimes that are fully fixed. However, this is not the case, in our view. Even somewhat flexible exchange rate regimes can produce the same constraints, leading to a policy trade-off. In the case of the Reserve Bank of India, for example, the reliance on capital inflows has meant that the RBI has had to walk a tightrope between raising rates quickly, and excessive currency appreciation thanks to ‘perverse' inflows of capital.

The predictability of the new regime could make the trilemma worse: In theory, the switch from a fully fixed exchange rate to a slightly more flexible one should reduce the constraints of the trilemma. However, most market participants expect a modest appreciation in the renminbi against the US dollar, and this predictability could work to make the trilemma worse in the short run. How? The combination of a predictably appreciating currency and a monetary policy regime that has postponed tightening in order to support growth provides the investor with: (i) increasing returns for capital inflows purely from currency appreciation, and (ii) policy support for the economy and for risky assets. Raising rates in such an environment would invite ‘perverse' capital flows of the kind that the RBI has been wary of. Thus, rather than affording some respite from the trilemma, the predictability of the new regime may make the policy constraints of the trilemma worse.

Importing AAA liquidity: Capital flows into China may be exacerbated thanks to an unlikely source - the euro area. Sovereign risks from the euro area have probably prompted not just the ECB but also the Fed to stay on hold for longer, keeping the AAA liquidity regime intact. The fast-growing economies of the world, particularly the ones with fixed or relatively stable exchange rates, import this excess liquidity, and China is high up on that list.

In the near future, more capital inflows, higher reserves and lower yields are the likely outcome. As capital inflows increase, China's system of capital and credit controls will probably lead to an increase in the size of its holdings of foreign exchange reserves. We believe that at least some of these reserves are likely to find their way back into bond markets, keeping yields anchored. Despite an extremely volatile period in developed markets, US markets - and even euro area markets - remain a favoured destination thanks to their size and depth.

Is it possible the US has been soft on China lately because it realizes the symbiotic relationship may be the only policy tool left to provide global liquidity needed to keep this dangerous game alive?

Below is a flow diagram we put together a couple of years ago, the first chart shows the US-China Symbiotic relationship in its full glory; while the second chart overlays in red what we expected the impact of the credit crunch would be on this important relationship: [Charts not available in text format.]

This relationship is part and parcel to a weak dollar policy as dollar based credit flows to the world once again on the rising US current account deficit. 

As we’ve pontificated here many times before, the US is the only one positioned to take the exports of the globe if Europe is serious about austerity.  And interestingly, the additional credit being created precisely because China has made a slight change to its currency may be the Trojan horse behind a return to the Symbiotic relationship that served global growth so well, but was also the primary cause of the credit crunch. 

Stay tuned. 

Jack Crooks
Black Swan Capital
www.blackswantrading.com

Have you heard about PositionTrader FX?

We’ve been getting the same question a lot over the last few days: is it too late to profit from the euro crash; and what about the Aussie ... or yen?

And our answer is:

No.

We’ve done well in 2010. And we expect to do even better as the halfway point approaches.

For good measure, I’ve included our year-to-date track record and profit curve here, reflecting through Thursday, May 20.

Here’s the bottom line…

We think the Euro is going to par with the dollar – 1:1 – or maybe even lower.

If you’ve been waiting on the sidelines, now is time to jump in.

If you’re not sure how to implement a currency trading strategy, we’ve got you covered. And we offer a 30-day 100% money-back guarantee if this isn’t for you. After that we prorate your refund on a weekly basis if it’s not working for you.

This is speculative trading and is not for everybody. If you’re cut out for this, jump over now and give it a try.

All the best,

David Newman
Director of Sales and Marketing
Black Swan Capital
dnewman@blackswantrading.com 
Phone: 866-846-2672

 

Forex Trading News

Forex Research

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."



Elevate Your Trading With The Amazing Trader!

The Amazing Trader includes:
  • Actionable trading levels delivered to YOUR charts in real-time.
  • Live trading strategy sessions.
  • Market Updates with Trading Tools.

Register To Test Your Amazing Trader


Trading Ideas for 16 October 2017

Register for the Amazing Trader

1.

Amazing Trader EVENT RISK Calendar:

Mon 16 Oct
01:30 CN- CPI
21:45 NZ- CPI
Tue 17 Oct
08:30 GB- CPI
09:00 DE- ZEW Survey
09:00 EZ- Final HICP
Wed 18 Oct
12:30 US- Housing Starts & Permits
14:30 US- EIA Crude
Thu 19 Oct
01:30 AU- Employment
08:30 GB- Retail Sales
12:30 US- Weekly Jobless
Fri 20 Oct
12:30 CA- Retail Sales & CPI
14:00 US- Existing Homes Sales

Forex Trading Outlook


Trading Opportunities


  • POTENTIAL PRICE RISK: HIGH Tue-- 08:30 GMT GB- CPI top tier confirmation of Inflation.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT DE- ZEW Survey second most important German monthly Survey.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT EZ- final HICP revision to flash report. Revisions are usually minor.

  • POTENTIAL PRICE RISK: Medium Tue-- 13:15 GMT US- Industrial Production. Top output indicator.



  • POTENTIAL PRICE RISK: Medium Wed-- 12:30 GMT US- Housing Starts and Permits revision to flash report. Useful housing leading indicator.

  • POTENTIAL PRICE RISK: Medium Wed-- 14:30 GMT US- EIA Crude. Top WTI inventory measure.



John M. Bland, MBA
co-founding Partner, Global-View.com

EXCLUSIVE: Global-View Daily Trading Chart Points Updated

EXCLUSIVE: Global-View Free Forex Database updated




TRADER ADVOCACY ARTICLES

Trader's Advocate Articles..

pic

Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

 
Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map


Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Open Forum
Futures Forum
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Online Forex Trading
Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
Forex Products
GVI Forex
Free Trials
FX Bookstore
FX Jobs and Careers
Jobs USA
Jobs UK
Jobs Canada

Forex Forum

The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.

Forex News

The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.

Currency Trading

Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.

Forex Brokers

The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.

Forex Trading

Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.

FX Trading

Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.

Forex Blog

Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.

 

WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.

Copyright ©1996-2014 Global-View. All Rights Reserved.
Hosting and Development by Blue 105