Tuesday May 31, 2005 - 10:57:18 GMT
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Black Swan Capital - www.blackswantrading.com
China slowdown and euro-crush!
“The triumph of hope over experience.”
FX Trading – Hodgepodge today
Growing financial danger from its property bubble internally and threats of trade sanctions externally—China, long the darling of the commodities crowd in this cycle, is beginning to shrug.
From The Standard today [our emphasis]:
“Total [Chinese state bank] lending for real estate purchases reached 2.6 trillion yuan (HK$2.44 trillion) by the first quarter of this year, the report said. Of that total, 800 billion yuan went to property development. Much of the lending was tied up for long periods of time, and the limited liquidity poses a threat to the financial system, Yan told a banking conference.”
From Stratfor.com last Friday [our emphasis]:
“In the three years it would probably take for China to bring, argue, and win a case [against tariffs on textiles] and then force implementation, Europe and the United States quite easily could launch and win a full-on trade war. The West imports more than three times the value of goods from China than it exports to it, and none of these goods are made exclusively in China.”
The Aussie—we believe the most vulnerable on China slowdown, is starting to break, but not quite there yet, as you can see in the chart below. There is still a lot of air under the Aussie.
The euro continues to be hammered lower this morning. Oversold it is, but now we could be seeing what we thought we might be seeing—longer-term players capitulating to the dollar trend higher. The catalyst of course for this move was the French vote and now the likely prospect that the Dutch will follow suit with a No! vote on EU Constitution.
Something about “the best laid plans of mice and men” might be appropriate here.
The next question: How low can it go? Short answer: A lot lower than most people would have believed last Friday. Euro 1.20 is in sight on the weekly chart below:
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