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Archive for September, 2007

China muscles into forex

Check this out from China Economic Net:

 

China Investment Corporate Ltd. (CIC), the country’s long-awaited state forex investment company set up to make better use of its huge foreign exchange reserve, was inaugurated on Saturday.

The CIC, with a registered capital of 200 billion U.S. dollars, is a solely state-owned company, according to the company sources.

The government is setting up the company to help increase the returns on the country’s forex investments, currently mostly parked in US-dollar assets.

Let’s think about this. $200 billion USD cash reserves they are going to be more “active” in. Dollar is going down. Hmm. Doesn’t sound like a good time to be a buck.

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379294955_5d0881a36f.jpg The combination of dollar weakness and loonie strength finally has brought the USD/CAD to parity. Today for the first time, the pair closed below it, i.e. the loonie’s worth more than a buck. Wow.

NPR did a funny story on it this week. It mentioned how the loonie used to be a bit of a joke – the name, the funny picture on the coin, the fact that it was worth sub-USD – but no more and that now wealthy Canadians are descending on the U.S. border. They mentioned that the USD/CAD different than other paired currencies, and the parity then comes with “an asterisk ,which to our Canadian viewers is like a maple leaf but smaller and off to the side.” lol too funny. Enjoy listening, the link is in red in this story.

 

And be careful trading the pair. It has come very far very fast, be sure you do not chase it. I see some support in combination with the pair being oversold. Notice the light blue line of support on the oscillator. The Technical Commentary article from last week delves into support/resistance on studies. Call me a bear here but it makes me nervous at this point, notwithstanding the great Canadian strength and dollar weakness.

 

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I’m totally kidding! Check out my favorite “Bushism” video, which has some fun with the President’s bloopers, non-trading related but good clean fun and it’s important to make room for that. Trading can be quite stressful. Fortunately for you traders who like to blow some steam off fishing , our President has testified that he knows “human beings and fish can peacefully co-exist.” Thank heavens! I wouldn’t admit this without the anonymity of the internet, but at times I fear fish uprisings.

 

Tonight Fed Governor Mishkin said that the U.S. economy is doing just fine, thank you (aside from the cave-in in housing.) It’s a nice little vote of confidence, and makes you wonder if in the short-term the big drop in the dollar has been overdone. Despite these comments the buck is being beaten down some more tonight. Interestingly, last Thursday Mr. Mishkin spoke of how the U.S. economy may slow, read it here.

 

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confusion3.JPG I believe this is the first time that the dollar and loonie have been at parity (correct me if I’m wrong), i.e. the two are of equal value. USD/CAD‘s at 1.00. Sounds like a great excuse for a party!

 

This means a potential problem for the USD/CAD to go lower at present. For the pair is the rampant strength of the Canadian economy, as commodities rage higher. Also, the dollar is as limp as spaghetti at the bottom of an ocean trench.

 

However, what lines up against the pair is the fact that the buck is very oversold – as seen by any oscillator thrown on the chart, as well as that magic 1.00. In the world of round numbers, that’s as round as it gets, and round numbers can be tricky and downright troublesome for prices to breach sometimes.

 

If you’re looking to trade the dollar or the loonie, like I am, I’d look elsewhere right now to err on the side of caution.

 

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Welcome back home to the new reincarnation of the Investools FX blog. My name is Michael Atkinson and I am glad to be back with you again! You are in good company, many of our students have rejoined us after a year-long hiatus from blogging. Hello again!

 

Check out the GBP/JPY and be on guard: the stinker is back up to one of its extremes – resistance this time – and looks frisky! I wrote about the good news for the cable in today’s Daily Commentary on the FX website, but will it be enough fuel to push the pair through resistance and stay there? I’m dubious right now.

 

Let’s look for a retest of what is not support on this hourly chart, and then a break above the 234.80 area before getting too excited. Even then, remain on your guard. There is still plenty of bad news floating around, a lot of it nailing the Brits because of their exposure to bad mortgages.

 

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