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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: John Pitera who wrote (84571)9/4/2008 7:11:50 PM
From: ajtj992 Recommendations  Read Replies (5) of 116555
 
From a technical standpoint, if the Euro does not hold 143 USD, it's got little between there and 136. It has quite a bit of support in the 135-136 area. Ultimately, it is likely headed to 125 and 117.

This in turn is causing the USD to stabilize against the Chinese Yuan, as the Euro had actually appreciated against the Yuan since the creeping peg was adopted by China in 2005. The Yuan is currently about 4% higher against the Euro than it was 3-years ago, so China would like to see its currency appreciate some more against the Euro to deflect trade protectionism from that area.

What does this mean for China? Well, 50% of the Chinese growth has been due to foreign direct investment the past 2-years, and much of that was due to the 1-way currency bet, as it locked in 5-8% gains annually. With the strengthening USD, that foreign investment should drop. Already real estate prices are dropping 15-20% in many cities in China as these flows of cash are not being sustained, and this could be just a beginning of a larger slowdown in China.

China is important because of their appetite for commodities. A slowdown there brings lower prices everywhere, and it also reduces flows of funds back to the USA.

The global economic slowdown is an unwinding of leverage and credit that is only just starting to show its effects. We likely won't feel the full force until 2-years from now.
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