top fx market movers

G7 Speculation Sets New Record For Chinese Yuan (CNY)

Thursday, 08 February 2007 20:33:58 GMT  |  Richard Lee, Strategist

·         G7 Speculation Sets New Record For Chinese Yuan (CNY)

·         MAS Expands Lending Requirements, Supports Higher Singapore Dollar (SGD)

 

Hong Kong And China

The Chinese yuan made another historic push higher, trading above the 7.7500 level as the Hong Kong dollar continued to debunk market theory.  Traded in relative tandem to the Chinese yuan, the Hong Kong dollar has been trading lower against the US dollar in recent sessions declining again for the fourth out of the past five sessions.  Responsible for some of the weakness on the day were comments by the chief executive of the Hong Kong Monetary Authority.  Chief Executive Joseph Yam noted that market volatility has increased in recent sessions, attributed the “current abundance of liquidity.”  Additionally, Yam noted, “the characteristics of the financial markets of Hong Kong make them prone to even greater volatility.”  Although harmless, the comments can be construed as a near term warning to markets.  Subsequently, the de facto central bank, remaining steadfast in their conservative ways, may effectively act in favor of restraining current market fluctuations.  The notion comes on the heels of earlier warnings last week that China’s markets may be developing a bubble, sparking some government investigations into the rampant equity speculation.  Countering HKD weakness on the day was mounting speculation that Chinese officials will remain under extreme pressure at this weekend’s G7 finance ministers meeting.  Although some of the attention will be allotted to the recent depreciation in the Japanese yen, focus is expected to continue on the widening trade surplus that China has amassed over the years.  One thing to consider, however, has been the recent appreciation in the currency.  As the yuan rises in value, its exports become less competitive.  Granted, the notion is far fetched considering the vastly undervalued yuan, but effects may already be forming.  In the month of January, the trade surplus is expected to narrow significantly to $15.5 billion compared to $21 billion in the previous month.  The decline may be enough to steer attention away from the Chinese, shifting more to the yen quandary.  Either way, market speculation is still siding with some newsworthy event out of Essen this weekend that will help in boosting the Chinese currency.

 

Hong Kong Dollar Caught Stalling

Continuing slightly higher in the overnight, the USDHKD has taken out the 7.8150 triple top notion after finding support at the 7.8120.  Currently trading below the 7.8165 resistance, further upside is favored on a break of the session high, taking it to 7.8200, psychological level.  Momentum indicators confirm the notion as MACD shows convergence in the 60-minute time frame while Heikin Ashi suggests a continuation of trend.  However, given the consolidation of the price, a break lower can not be precluded at this time.  Support at the 7.8140 will hold firm for the time being, but would give way to a short term target of 7.8120 on a break.  Should the short term barrier additionally be pierced, bids will look to 7.8100 to re-initiate longs.

 

Singapore Dollar

In an attempt to boost investment in the country, the Monetary Authority of Singapore has reduced the amount of equity capital that major regional lenders are required to hold.  Incidentally, the move helps to free up extra capital for the creation of new loans domestically.  Particularly, equity in DBS Group Holdings Ltd, United Overseas Bank Ltd, and Oversea-Chinese Banking Corp, will be freed up allowing the companies to either lend more to domestic development projects or pay the cash out in the form of a one-time dividend to investors.  However, the overall capital requirement will remain at 10 percent, leaving the current restriction one of the strictest requirements compared to international regimes.  The implementation, beginning March 1, will help in boosting the region’s growth as tourism expectations have also increased for the New Year.  Subsequently, both will contribute heavily to further appreciation in the underlying spot, already at nine year highs.  On the day, however, traders pared back on profit taking as the currency rose against the US dollar for an impressive 7 sessions.  Rising to 1.5300 against the US dollar, the SGD has pulled back to trade lower at 1.5327 heading into the New York close.

 

Upside Likely In USDSGD

Testing near term resistance at 1.5360, the USDSGD has pulled back to previous support at 1.5320 only to stall at the New York close.  Finding support at the 1.5300 in the overnight, the pair broke through the 1.5424 to 1.5376 topside trendline in the 60-minute.  The level is currently being tested at 1.5330, and will add to momentum indicators suggestive of upside potential.  Heikin Ashi is indicative of a changing trend, confirmed by a Stochastic golden cross.  As a result, bids will push higher for a retest of the 1.5358 session high before opening up to 1.5384 R1 daily pivot and a 1.5420 top.  Conversely, 1.5300 still looks attractive, but contingent on a close below 1.5320 Feb 5 hourly spike low.

 

Resources

• free demo account
• forex courses
• open an account
• forex stream
• free webinars