Forex Investment and Currency Trading

There has been much recent speculation that China has changed its FX policy and no longer wants a fast appreciation of the Chinese yuan (CNY). People who have this view use the recent consolidation in USD-CNY to support their case. However, a more detailed examination of CNY trading patterns against China’s major trading partners suggests that CNY appreciation has accelerated rather than slowed – against other currencies than the USD. This leads us to the view that the People’s Bank of China (PBoC) may now be managing the CNY on a NEER (Nominal Effective Exchange Rate) or trade weighted basis [...]

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We have had a massive unwind of short US dollar / long RMB positions from the hedge fund community given the slower pace of the RMB appreciation from the People’s Bank of China (PBOC).  The positions have been exited as a result of the general US dollar rally versus the EUR and GBP over the past week which has prompted a US dollar rally against most currencies and the fact the PBOC slowed its appreciation to only 0.50-0.75% in the month of April.  For your guide, we averaged 1.5% appreciation from November 2007 through March 2008.
Overall, this should be a [...]

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Euro zone policy makers have given off conflicting signals in recent months over the ongoing strength of the EUR. To be sure, there are justifiable reasons for concern. Versus major currencies the trade-weighted EUR (Bank of England index) soared in the last 6 months to levels not reached since
the early 1980s, a period when, one could argue, the Euro zone economies were more competitive, with a more modern capital stock and less competition from global producers. And not only has the EUR been strong relative to major currencies, but the EUR (XEU prior to 1999) remains near its record high [...]

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USD
Event risk: Mixed messages from the chain-store data but broad recessionary conditions and 4 consecutive falls in retail jobs suggest downside risk to consensus calling for a 0.2% rise in core retail sales (Mon). The ECRI leading index hints at still more potential downside for the Empire survey (Tue) and Philly (Thur). A 7%+ fall in Feb permits warns March housing starts (Wed) could fall sharply too. The Fed’s Beige Book (Wed) is likely to be peppered with anecdotes of yet more slowing in activity while the core CPI (Wed) should bounce back from an aberrant flat outturn to [...]

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10% CNY appreciation expected in 2008. The authorities are increasingly targeting gains against the Euro as well as the USD.
The CNY has appreciated 4% since the start of the year, its largest three-month gain since revaluation in 2005. The annualized pace of appreciation is likewise running around 15%. Rising inflation pressures are a popularly cited reason for the recently large gains. The authorities have also talked of targeting CNY gains against a trade-weighted basket, rather than just the USD. The Euro area is currently China’s most important trading partner, yet the EUR has risen 1% against the CNY this year. [...]

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