For years institutions have “bet” on the continued strength of the Yuan as a “safe bet.”
That might have all changed around mid January of this year … from Jan-March the Yuan weakened appreciably.
To quote one news article – “this move is particularly notable, as the yuan has broken through the 6.20 yuan per dollar mark. At that point, some investments that bet on a strengthening yuan should start to incur “sizeable losses,” (my emphasis added) according to foreign exchange strategists from Bank of America Merrill Lynch.”
Folks, the pattern shown below is a BUY pattern which, if correct, will lead to another move HIGHER – weak Yuan vs the USD. Right now, as we move down from the notable move UP perhaps all seems OK. Put this into the context of the recent sell-off in the equity markets — I’m guessing here, but I bet it’s “safe” to assume 100’s of billions of dollars are tied up in some exotic way for the institutions to grab any yield out there w/ regards to the “safe bet” on the Chinese Yuan. If this thing starts going back up again then my hypothesis (only a thought) is the “institutions” are going to try and unwind these positions – maybe in a hurry.
There are many ways countries muscle their weight around … cyber, traditional weapons, deterrence, etc. In the end, these are usually reactions to the global flow of funds. The next move by the Chinese will be extremely interesting (folks, they control (manipulate) the currency level – it’s not a true float) on the global scale.
If you don’t think it’s true then just think of the masterful move by Mr. Putin. Right before an invasion of Ukraine (maybe) the Russians sign an order to BUY BILLIONS of dollars of planes from Boeing. Now isn’t that interesting …. (http://www.reuters.com/article/2014/08/06/ukraine-crisis-russia-airlines-idUSL6N0QC3JK20140806 )And, why they are at it, let’s give Snowden another 3 years in our country. CHECKMATE … China, your next move please?
WATCH CLOSELY ….