Forex Investment and Currency Trading

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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The USD Collapse
We have entered a new world – scared rather than brave. Since the start of 2008, the DXY (USD) index has declined by -6% and with more bad news likely to come out of both Wall Street and Main Street over the next few weeks, there is little reason to be bullish on the U.S. economy or the USD near term. Further deterioration is likely. This is significant for the CNY since it seems to us that China’s currency has been targeting a gradual appreciation against the USD, rather than the basket. In practice, this regime has delivered [...]

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