The last two years have witnessed a veritable collapse in the value of the Dollar, which has declined over 25% against the Euro, alone. While opinion remains divided, many analysts are predicting a (temporary) cessation in the Dollar’s downward slide. The reasoning is that the worst possible scenario involving the American housing crisis has already been priced into the Dollar. Furthermore, experts argue that the inevitable loosening of American monetary policy will help boost the American economy by preventing it from slipping into recession. Finally, there is the notion that China will begin to take steps to appreciate its currency relative to the Euro, which has actually risen against the RMB. The law of triangular arbitrage requires that any rise in the Euro against the Yuan must be matched by a proportional rise in either the Dollar/Euro or the Dollar/RMB rate, the latter of which seems unlikely.
HK Maintains USD Peg
Last week, the Central Bank of Hong Kong intervened in forex markets for the first time in nearly two years, by purchasing over $1 Billion in US government securities. The intervention was precipitated by fluctuation on the HK Dollar, which had been tending towards the upper end of its tightly controlled trading band. Strength in the HK economy combined with a strong performance in HK capital markets have sucked large amounts of foreign capital into the Chinese-controlled city-state, which exerted upward pressure on its currency. Hong Kong's Central Bank also matched the recent rate cut by the Fed with a rate cut of their own. Many analysts had put forth the idea that Hong Kong would scrap its peg when the Chinese Yuan slid past it, but this recent move suggests the Dollar peg is here to stay.
source: Forex Blog
Stress FREE trading! Learn more Click Here!
A recap of today's move. End of 2nd week trade
This is the continues chart (zoom in) I posted earlier. Remember those significant levels I've said earlier? Price roam all of it in a span of 16 hours.
Here's what I did. When the price touched the upper channel and the Stoch, CCI indis crossed down; I open a short (sell) hedge. At 4am EST, there were 2 EUR news announcements followed by ECB President Trichet dovish speech. Both news was negative bias to the Euro, German Ifo Business Climate Index came out 107.0 with expectations of 108.4 and the German Ifo Business Expectations Index came out 102.8 from 104.8 expectations. The news gave eur/chf a whipsaw then fall straight down to the 38.2 fibo. Then afterward drop to the lower channel... made a small correction back to the 38.2 fibo before continues its down move to the 50 fibo. The bear lost steam from there 'til market close of the week. I closed the positions on the third bounce of the lower channel.
To make it short. It was another perfect call.
PMTFC end the week with a total of $3420 equity, and $7357 for TN's account. I know the results this week is not something to hoot and holler, but it is better to end the week with small profits than small lose.
Here are the reasons of the small gained:
- If eur/chf is trending downward, I will only trade with small margin. It is because short hedge position/s is risky with a uptrending carry trade pairs.
- The Fed is pressuring the Chinese government to slow down their fast rising currency. If the yuan makes an impulsive drop, we will see a snowball effect to the global market, just like last Feb-Mar. Related topic here> forex factory
- There is also the subprime mortgage problem going on in the States. Like what happened last February. More of the story here> CNBC
- More of current negative news of EUR. Related topic here> bloomberg
- Japan's possible of a .25bp rate increase, which will tighten the interest rate gaps of major pairs. Related topic here> forex factory
All this will affect the carrys. You can read the CNBC news article yesterday, here CNBC
