US Treasury Secretary Timothy Geithner suggested that he sees no reason for the dollar to sink further against the euro and the yen, saying these major currencies are “roughly in alignment”, the Wall Street Journal reported on Thursday.

Rumours of other strategic Sino deals include China Development Bank’s partnership with Anglo American, who have strategic interests in Africa. The bank is also apparently in talks with Swiss commodities trader Glencore about its 35% stake in mining giant Xstrata. Talks are also in progress with Russia’s mining business Rusal who are the world biggest aluminium producer.

Should we be concerned? Of course, as the strangle hold that China is attempting on the world’s natural resources will impact on all of us and no doubt become a future source of geopolitical tension. This action by China has only been possible because Western banks, financial institutions and governments have been too busy trying to prevent the entire capitalist system from imploding.

Aside from the political ramifications should any of these mega deals to through there will be a massive effect in the currency market and we can expect to see huge moves in the currencies most affected, ie the dollar, aussie dollar, swiss franc and british pound. Of course the Chinese may just decide to pay with the mountains of cash they already have in their own  banks!

This is the Year of the Rat which is highly appropriate given what is currently going on: apparently the Rat likes to know who is on its side and will treat its most loyal friends with an extra measure of protection and generosity. Behind that sweet smile, though, Rats are keen and unapologetic promoters of their own agendas. It could be the sign for China itself!

In 1985 the US dollar was at a multi decade high. So much so that Time magazine had a cover that year entitled “The Super Dollar” when the dollar index registered a level over 160. That, of course, was its death knell as since that highpoint the dollar could be said to have been in permanent decline.

In 1985 Ronald Reagan and the Republicans were in power and their idea was to promote US goods and services overseas by making them more competitive. This policy was taken further by George Bush Sr and his Treasury Secretary, James Baker, who were quite open about actively promoting a weaker dollar. And it worked.

It wasn’t until the Clinton Presidency that the dollar managed to regain 50% of its value, peaking again in late 2000 through mid 2001, just as Bush Jr came into power, reaching a level of 120 – as shown in the chart above. January 2002 was the last time the index posted a level above 120 since when it has been in a steep decline – with the exception of 2005 when there was a small rally.

If this recent history repeats itself and another Clinton makes it to the White House we may see a dollar revival. If a Republican were to win the odds shift even further to a continuation of the dollar’s decline.  However, as the decline has been so strong this correlation may be irrelevant.

However, weekly and monthly charts for both the euro dollar and pound dollar all point to further dollar weakness. The euro is once again eying 1.50 while the pound is looking again at 2.0 as the market waits for the aforementioned nfp and ism numbers. Even if stellar numbers are reported today I still expect both the euro and pound to mount a serious challenge to these levels and beyond. We will not know if it will be a sustained move until the middle of February.

Against this background it is not surprising that forex movements in all the pairs can appear somewhat random as the market waits to decide on the future direction of the major currencies.