Forex action after China reval

Discussion in 'Forex' started by mtzianos, Jul 23, 2005.

  1. I'm perplexed with Thursday/Friday's forex action, although I can't say I didn't expect it after the V-reversal right after the runup after the reval news hit the street.

    Disclaimer: I subscribe to the idea that there's a "they" (big players who can and will force the market's hand, spitting in the face of funnymentals, news and "logic").

    Still one would think that bigger markets (forex is supposed to have daily turnover of >$1trillion) and unexpected events might sometimes overwhelm even "them" on occasion (e.g. the +30% spike in gold back in 1999, or the unwind of the Yen carry trade in 1998)

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    Btw in both cases (and many other cases, in less widely traded markets) the Central Bank / authorities criminals stepped in to save "them". Thus creating the "moral hazard" (in stocks it's known as Greenspan put, VIX @ 20yr lows etc), which we're used to nowadays. But that's another story...
  2. Anyway, I was looking at Euro's action right after the China reval, last Thursday.

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    Notice that the rally was stopped a 4 ticks (1.2283 vs 1.2287) before reaching a "breakout" level of the previous 10,20 days highest high (where there are usually stops by trendfollowing funds channel breakout techniques and probably also stop-loss orders of Euro shorts). And a few ticks higher was the 30day high etc

    Triggering those orders might have pushed the Euro quite a bit higher.
  3. If this were big players who was actually looking to sell Euro/USD (USD is such a good value afterall ;-), wouldn't he wait a few minutes or ticks, so he could sell into the aforementioned stops above 1.2290 (futures) prior swing high?

    Or even if the market didn't have enough momentum reach there on its own (hardly so), wouldn't he try to push the market there, just to sell into those stops?

    We see this happen in all markets and timeframes, e.g. daily SPX triggering the stops above 1220 on 7-Mar-05 and then plunging.

    My theory is that "they" had not finished liquidating their Euro shorts, and wanted to prevent a rally on triggering of stops over 1.23 on unexpected news. As this would mean they'd have to cover their Euro shorts at higher prices.

    Still, I have to ask myself, just WHO could be "crafty" and "bold" enough to try (and succeed!) to quell the developing rally in the majors vs USD after the China reval ? Afterall, Forex isn't supposed to be the TZOO or even GOOG casino.
  4. IMO Hussman is a very bright fellow (with a good real-time track record as fund manager)

    China Revalues
    There's no such thing as a "baby step" when you're standing at the edge of a cliff.
    By John P. Hussman, Ph.D.