Chinese Equity Indices – Another Sharp Drop

Boston August 13 10:06 EST We noted John Auther’s piece in the Financial Times on July 30. He pointed out

Boston August 13 10:06 EST

We noted John Auther’s piece in the Financial Times on July 30. He pointed out the sharp drop in Chinese Equities which are widely considered one of the riskier asset classes. Mr. Authers further pointed out that Chinese Equities were a foreboding frontrunner to the collapse of the global equities markets starting in late 2007 and even more so in the first half of 2008.

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Chinese equity indices gave up another 4.6% or so this morning. With this coming just before a US FOMC meeting results and after the Bank of England admitted that their quantitative easing has not helped as much as they expected, it is a worrying sign for global equities bulls. It seems that many assets considered risky have been in a bit of a holding pattern since this past Friday’s US NFP release…….should make for an interesting read from the FOMC this afternoon.

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As it related to the currency markets, we have seen EUR/USD sitting quietly since Friday’s US NFP, and the yield on the US 10 year note is slowing it’s ascent. If the Fed’s release today indicates positive signs for the us economy, we expect traders to continue their buying spree of risky assets; EUR/USD should rise and GBP/JPY should move higher in coming days. But any signs of negativity in the Fed’s release may pave way for lower EUR/USD in the next day or two.

We remain in our full long EUR/USD position with a Stop Order only on a daily close below 1.3750. Short term we will day trade GBP/JPY. We will go into the Fed’s release with a small long position and see where it takes us.

Stay Nimble!

Stephen Leahy
Back Bay FX Services, LLC
www.backbayfx.com

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