Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

When Should You Panic About The Yuan? Here Is The Simple Answer

Courtesy of ZeroHedge View original post here.

Chinese authorities weakened the Yuan Fix for the 8th day in a row overnight, sending offshore yuan down to 7.10/USD, drifting back towards last week's devaluation lows.

Some have proclaimed the recent 'stability' - i.e. yuan hasn't kept collapsing in a straight line despite capital outflow fears and the political crisis in Hong Kong – a positive

USD/CNY has become the most important gauge of the trade outlook and a further move north would spell trouble for risky assets. 7.30 is an important line in the sand in our view. To counter the newly announced 10% tariffs on the rest of the Chinese export goods, the PBoC would have to allow USD/CNY to move to 7.30 to counter the effects 1 to 1.

A move above 7.30 would likely lead to panic mode in the financial markets, while the interval between 7.00 and 7.30 is to be considered risk-off territory. Below 7.00 is stabilisation territory.

Chart 1: The USD/CNY risk’o’meter

We take at least some comfort in the current policy from the PBoC. They have continuously set the USD/CNY fixing lower than “they should” over the past days. This is in our view a sign that the PBoC is trying to cave in the upside pressure on USD/CNY. Remember that markets, not the PBoC, weaken CNY versus USD, and currently the PBoC is fighting against the market. They will not continue fighting gravity forever.

Chart 2: The PBoC sets the USD/CNY fixing at too low levels, a sign that they fight against market forces

In the coming days we will likely see a lot of stories on "China pondering selling Treasuries as part of the trade war". In our view this is a non-sensical storyline. China only offloads Treasuries when market pressure is on the upside on USD/CNY. So right now, the PBoC may be offloading USDs and Treasuries, but all in an attempt to stabilise USDCNY. The market (almost solely) dictates the USD & Treasury holdings of the PBoC, not the PBoC itself.

And so there it is… Don't Panic quite yet… but soon.


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!





You must be logged in to make a comment.
You can sign up for a membership or get a FREE Daily News membership or log in

Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!