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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (7385)	6/21/2006 12:11:03 PM
From: John Pitera	Respond to of 33421

It had not closed under 8.00 which is a very important psychological level. The Level that Price CLOSES at is the Most Important Price of the Day. The Chinese Central Bank had really been controlling and defending against the Yuan's appreciation against the dollar for a number of months. Especially when the Cross rate got near 8.00. With The heavy decline which occurred in the USD from early April until Mid May pulling the Yuan even further into relative undervaluation against the other major world currencies the only thing that has keep the Yuan from not strengthening more in the past month has been the large upward bounce in the USD index from 83.70 on June 2nd up to 86.50 on June 14th. The next downleg of the USD will I believe see the Yuan moving reasonably swiftly down into the 7.88 then the 7.65 area. Of course, the Chinese economy and Bad Bank Debt Transparancy is Low. And the Chinese Central Bank and FX Markets are certainly very nascent. But the BOC KNOWS the dangers needlessly large currency swings and so far they have done a good Job of Not letting their currency appreciate too rapidly. Structurally the Banking system and Capital Markets in China need time to recalibrate their flow of funds and the interest rate differentials which are governing corporate cost of funds and Cash flow needs. JP --------------------------- Yuan posts highest close since revaluation Wednesday, June 21, 2006 5:11:36 AM (GMT-06:00) Provided by: Reuters News (Adds dealers' comments) SHANGHAI, June 21 (Reuters) - China's yuan <CNY=CFXS> ended stronger than 8.00 per dollar on Wednesday for the first time since its revaluation in July 2005 as the central bank stayed out of the market, dealers said. The yuan closed at 7.9970 against the dollar, up from Tuesday's 8.0029 finish and compared with its previous post-revaluation record high close of 8.0005, set on June 14. Earlier on Wednesday, the central bank set the mid-point of the yuan rate at a sharply higher 7.9990 from Tuesday's 8.0036. The mid-point is viewed as an important policy tool with which the central bank signals its intentions to the market. "There was heavy dollar selling in the last 30 minutes of the session, suspected to be from banks which had bought dollars to bet on a short-term yuan weakening," said a Shanghai dealer at a foreign bank. "The banks were forced to sell those dollars because of the requirement to balance positions at the end of the day," he said. "Major domestic banks, which frequently trade on behalf of the central bank, were inactive and this allowed the yuan to rise." The yuan has now appreciated a further 1.41 percent since Beijing revalued the currency by 2.1 percent and depegged it from the dollar in July 2005. In intra-day trade on Wednesday, it hit a post-revaluation high of 7.9968, toppling the previous record of 7.9970 hit last Friday. Dealers said Beijing might be using currency policy to help cool its racing economy, but they believed it was still too early to say the People's Bank of China would allow the yuan to quicken its pace of appreciation in the near term. "We cannot even say the yuan has now decisively breached 8.00," said a Shanghai dealer at a second foreign bank. (I believe that it has, just watch and the Yuan appreciate the next time the USD goes down 300 basis points......JJP). Dealers said they expected the yuan to move narrowly around that level in the near term while the market awaited more signals from the central bank. With the central bank reducing its intervention in yuan trading, foreign banks have become increasingly important traders in the Chinese currency on the domestic market. Thirteen foreign lenders were among the top 30 banks in the yuan's spot trading against foreign currencies in the interbank market in the first five months of 2006, the official China Securities Journal said on Wednesday. That was a sharp contrast with the first five months of 2005, when only one foreign bank was in the top 30 list, the newspaper said, quoting a document issued by the China Foreign Exchange Trade System to some of its members. "Most domestic banks are sticking to their tactics of spot trading in the face of the yuan's strengthening, but foreign banks are making an all-out effort to seek arbitrage profits in forward, swap and spot trading," the newspaper said