FOREX TRADING

The Chinese stock market has all but tumbled the past several weeks, falling off nearly 25% in a six week span overall, capped by a 6.7% drop yesterday. The causes for concern in the Forex world relate specifically to the Dollar.

As you might recall from several weeks ago, I spoke of the Chinese selling off some of their US treasuries and diverting that money to support their commodity purchases.
This tactic is proving to be detrimental to the short term stability of the Chinese economy, as with the information on the stock exchange shows that industry is not moving, which means the metals and durable goods they’re buying are sitting in warehouses, instead of feeding the economic machine.

For the US Dollar this is a sign that could spell out a difficult Fall/Winter once again, as China commits more money to helping their own corporations and diverts more and more funds away from Treasuries.

Already, the US has held three Bond issue auctions in which the Chinese bought nothing – a fact that is not getting as much attention at this stage as it had better. I’d bet, since my blogs have been a few weeks ahead of the mainstream news, that this will become a bigger deal in the coming months, as more auctions go by and China continues sitting on the sidelines.

Aside from this, we have the British Economy which is sputtering along, as it seems the politicians are doing nothing. Political sensitivity aside, the Sterling has been suffering because the establishment in Parliament is still trying to get over a spending scandal which dominated the headlines for two months. They are timid and afraid to do anything significant for fear of more backlashes, so they are also sitting and watching.

What Forex investors need is a clear sign from governments, that they are doing something, being proactive and working to turn the economy around instead of hoping that it will all by itself.

This week will be a slow one, many in the US are off for the week, and Europeans are spending the last week catching the remnants of the summer sun. The ECB meets this week – do not look for anything shocking there – they too are catching rays.