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Can You Profit from Currency Market Chaos?
The Forex markets are crazy these days as the yuan plunges along with many developing nation currencies. The ramifications of a cheaper yuan include increased Chinese exports and pressure on industries across North America, Europe, Great Britain and the rest of the world. In the meantime can you profit from currency market chaos? Let’s look at what is going on.
Plunging Yuan
The Chinese yuan is overpriced and the People’s Bank of China is letting its value fall. Unfortunately for the Chinese the fall of the yuan is not always pretty. Bloomberg Business reports that China steps up yuan intervention in order to maintain some control over the progressive devaluation of its currency.
China stepped up its defense of the yuan, buying the currency in Hong Kong and sparking a record surge in the city’s money-market rates to deter bearish speculators.
The People’s Bank of China repeatedly intervened in the offshore market on Tuesday, according to people familiar with the matter, following efforts to talk up the currency from two senior government officials on Monday. The yuan rose as much as 0.7 percent versus the dollar in Hong Kong, briefly erasing its discount to the onshore rate for the first time since October. The cost to borrow yuan overnight in the city’s interbank market surged to 66.82 percent, more than five times the previous high on Monday, as PBOC purchases reduced supply of the currency.
The problem for the Chinese is that even they do not have sufficient hard currency reserves to continually support a currency that wants and needs to fall to a valid market level. But, why is the yuan overpriced?
A Circle of Causation
When Chinese industry sees a decreasing demand for their products they order small quantities of raw materials (commodities) from their developing nation suppliers. In turn developing nations order fewer finished products from China, Europe, North America and Japan. With fewer orders from across the globe industries cut back further on orders for commodities in a downward spiral of causation. This is the nature of economies until there comes a point when things pick up. Knowing when that will help options traders profit from currency market chaos in the meantime.
4. http://www.options-trading-education.com/24360/can-you-profit-from-currency-market-chaos/
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