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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.
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.
