The Fed’s Secretary Paulson (ex head of Goldman Sachs – further evidence of the best man for the job or the continuing cosy relationship between investment bankers & governments!) was recently in China attempting to persuade the Chinese to revalue the Yuan – it is very low and continues to make Chinese goods very cheap and a continuing threat to manufacturing. However, sino-american relations are not exactly friendly at present as the chinese believe they have bought into assets which have falling steadily for some time. This includes their recent investment in Blackstone private equity, whose share price has fallen over 20% since floating in April.
The impact on the currency market from a souring of this relationship cannot be understated. The chinese could start a dollar sell off which would batter the dollar even further. However, such action would also further devalue their dollar holdings and simply add to their woes.
Looking at the dollar index on the daily chart and weekly charts it looks like it still has some way to go. However, on the monthly chart it seems to have touched a low not seen since early 2005. Whether it continues down or begins to reverse is anyone’s guess. My advice would be watch the chinese – they have it in their power to make or break the dollar. In addition pay attention to the rhetoric from the presidential candidates and US congress once the summer holidays are over.

Since the 27th July the lucrative yen carry trades have fallen off the edge of a cliff to the tune of 20%. The reasons for this have been the usual variety of bizarre and fanciful!These have included increased volatility in all markets, hedge funds finding themselves short of cash as interbank liquidity suddenly dries up, and last but by no means least, the Japanese housewife!!Apparently this docile form of womenhood has been trading forex in such large numbers that they can apparently move markets on their own – utter rubbish in my view!!

All the charts of the yen carry trades, that is the New Zealand dollar, the UK pound and the Euro, all exhibit the same trends in the charts. All have had significant falls in the last two weeks, but are now showing signs of a bounce back. Whilst I would not advocate my own style of trading to the current oppportunities ( long term trades ) I do see an opportuinity for short term gains, provided you open positions with wide stops, should volatility return to these markets. At the end of the day, the differential rates are still there, so untill these rates change the carry trade is alive and well. You will just have to be more careful in planning your entry and exit points.

I currently have no carry trades open myself, but will start to look at them again in the next few weeks, to see if there are any long term opportuities identified from the weekly or monthly charts – for me it is too early to say ( you see I have a trading plan and strategy ) but for you, there may be short term opportunities, if this is the way you trade. The fundmanetals have not changed since July, and even if the FED do start to cut rates next month, the profit opportunities will remain for some time to come.

Just a short note to let you know that I opened another long trade on the above pair yesterday at 1.2172. My target for both these positions from the last two days is 300-400 pips, so we shall see. These trades may be on for a few weeks before I close them out, but I will keep you up to date with progress – regards Anna

With the apparent turn in the major crosses including the pound dollar and the euro dollar, the dollar swiss provides a good opportunity to trade long and also benefit from the carry trade. As most regular traders know, the pair is a snythetic pair, which correlates negatively with the Euro Dollar cross. Having seen the moves in the market recently, I opened a position yesterday at 1.2092, and am now sitting on some healthy profits at 1.2160, as the EUR/USD falls further. Indeed I am thinking of opening further positions as the majors continue to decline.

Having penetrated resistance at the 1.200 – 1.2100 level, this now seems a strong position, and I will be holding these trades for several days if not longer. Whilst the interest on the carry trade is not great, it all helps, even if only a little!!!

Interventions by central banks are never viewed particularly favourably by the currency markets by the currency markets and always lead to a sell off of the currency concerned. This has happened to the euro following the ECB’s recent intervention. The most to suffer was the euro/yen cross as speculators rushed to close out their trades and bank their profits. A fall in the euro dollar also ensued and the bank’s statement that “it stood ready to act” only made the market more suspicious. Other central have also pumped money in the system but without comment.

My own personal view is that despite tough talk from the ECB about continuing to raise rates in September and October this crisis has been the perfect opportunity to take some heat out of the euro. An exchange of rate 1.4 plus to the dollar would, in my opinion, be too much for most of the eurozone economies. The cost of louis vuitton, gucci, prada, dior etc would just be too much in the lucrative markets of russia and the far east!

Also as I have been saying in this blog for some time, the GBP/USD would turn somewhere between 2.03 and 2.1 – it seems from the recent charts that this point may have been reached at 2.06. Whilst I don’t normally try to forecast tops and bottoms as it is a mugs game, on this occasion I felt strongly that this would be the area that the pair would turn. Similarly with the EUR/USD in the 1.38- 1.42 region – now we must wait and see if the move downwards is the start of a trend or merely a short term reversal with the key points for the GBP/USD being in the 1.96 region. If prices penetrate this support area then expect them to move lower in the next few weeks.