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In recent months, a lot of concern has been expressed
about a possible risk event emanating from China. This is related to
concern about the aggressive and excessive growth of credit that many
believe is unsustainable due to the high risk of the projects that are
being funded. Another major concern is that many of the companies
funding projects across China are non-financial companies who have
excess reserves that they prefer to lend instead of placing in low
interest -bearing savings accounts. As such, the due diligence and risk
controls associated with prudent lending go out the window with these
companies who together form the menacing shadow banking sector that
represent a worrying 70% of GDP. If we were to see defaults at the
regional and provincial level, a crisis of confidence could unfold
according to vice president of Northern Trust, James Pressler.
Information shows that George Soros´ hedge fund, Soros Fund Managment has doubled a
bet that the S&P 500 is headed for a fall in the fourth quarter
this year, According to data from the SEC Filing on Friday February 14,
2014, the fund increased its put position on the S&P 500 ETF by 154%
for the fourth quarter. Although one cannot definitively associate this
move with expectations of a crisis emanating from China, Soros did
express concerns about the sustainability about the current policies in
that country where debt levels are soaring undisturbed in the shadow
banking sector.
So if such an event were to take place, how would it be reflected in the currency market and how would one be able
to profit from it? Risk-aversion would set in and the currencies of
USD, and JPY would be viewed as safe-harbours for investors- naturally.
Another factor that would be considered is the strong trade relations
between China and countries highly dependent on domestic demand from
this country. Of the G-10 countries, Australia`s exports are the most
dependent on China and would be very sensitive to a major event coming
from its export partner. Selling the AUD therefore at the onset of a
crisis could generate large gains for aggressive traders. Lets take a
look at how and when this could occur using the AUD USD assuming that it
takes place in the 4th quarter as per Soros´ `prediction`.
At present the pair appears to be in the process of forming a very large
Range pattern on the Weekly Chart. We have seen one of the Support and
Resistance points being formed and if momentum were to build take the
recent upturn in the AUD back up to 1,9750 we could see the formation of
the 2nd Resistance area. Given that the two previous waves of bullish
and bearish trends have taken 2-3 months on average each, a second
bearish trend within this range would start in June and take it back
down by August to Support, close to the start of the 4th quarter.
WEEKLY CHART
As developments unfold in China, the sharp sell off of the AUD would lead
to a break of this Support point for several hundred pips. Starting at
the Support area of 0,8870, a decline by at least 1000 pips can take
place as this the normal size of moves on Consolidation patterns as
large as this one.
WEEKLY CHART
Both short-term and long-term (weekly, monthly, quarterly) will benefit from
this aggressive breakout that would have minimal upside reversals. By
the end of the quarter, an exchange rate of 0,7700 or lower would be
expected and coincide with the projected decline of the S&P and the
Soro´s Fund´s bearish bet at the end of the year.
Review......
Simply to long to review
about a possible risk event emanating from China. This is related to
concern about the aggressive and excessive growth of credit that many
believe is unsustainable due to the high risk of the projects that are
being funded. Another major concern is that many of the companies
funding projects across China are non-financial companies who have
excess reserves that they prefer to lend instead of placing in low
interest -bearing savings accounts. As such, the due diligence and risk
controls associated with prudent lending go out the window with these
companies who together form the menacing shadow banking sector that
represent a worrying 70% of GDP. If we were to see defaults at the
regional and provincial level, a crisis of confidence could unfold
according to vice president of Northern Trust, James Pressler.
Information shows that George Soros´ hedge fund, Soros Fund Managment has doubled a
bet that the S&P 500 is headed for a fall in the fourth quarter
this year, According to data from the SEC Filing on Friday February 14,
2014, the fund increased its put position on the S&P 500 ETF by 154%
for the fourth quarter. Although one cannot definitively associate this
move with expectations of a crisis emanating from China, Soros did
express concerns about the sustainability about the current policies in
that country where debt levels are soaring undisturbed in the shadow
banking sector.
So if such an event were to take place, how would it be reflected in the currency market and how would one be able
to profit from it? Risk-aversion would set in and the currencies of
USD, and JPY would be viewed as safe-harbours for investors- naturally.
Another factor that would be considered is the strong trade relations
between China and countries highly dependent on domestic demand from
this country. Of the G-10 countries, Australia`s exports are the most
dependent on China and would be very sensitive to a major event coming
from its export partner. Selling the AUD therefore at the onset of a
crisis could generate large gains for aggressive traders. Lets take a
look at how and when this could occur using the AUD USD assuming that it
takes place in the 4th quarter as per Soros´ `prediction`.
At present the pair appears to be in the process of forming a very large
Range pattern on the Weekly Chart. We have seen one of the Support and
Resistance points being formed and if momentum were to build take the
recent upturn in the AUD back up to 1,9750 we could see the formation of
the 2nd Resistance area. Given that the two previous waves of bullish
and bearish trends have taken 2-3 months on average each, a second
bearish trend within this range would start in June and take it back
down by August to Support, close to the start of the 4th quarter.
WEEKLY CHART
As developments unfold in China, the sharp sell off of the AUD would lead
to a break of this Support point for several hundred pips. Starting at
the Support area of 0,8870, a decline by at least 1000 pips can take
place as this the normal size of moves on Consolidation patterns as
large as this one.
WEEKLY CHART
Both short-term and long-term (weekly, monthly, quarterly) will benefit from
this aggressive breakout that would have minimal upside reversals. By
the end of the quarter, an exchange rate of 0,7700 or lower would be
expected and coincide with the projected decline of the S&P and the
Soro´s Fund´s bearish bet at the end of the year.
Review......
Simply to long to review
