Fundamental Analysis
HKD/JPY exchange 20.46 Yen to the HKD):
rate was
Japanese mutual funds (Toshin) are reportedly seeing net outflows from Yen into foreign- denominated stock markets. Kampo ( Japanese Post Office) is apparently sear- ching overseas for alternatives to JGBs, seeking higher yields to provide to its clientele of aging savers.
Given the mag- nitude of money involved, if such a move conti- nues we expect Yen weakness to gain momen- tum.
The Hong Kong Dol lar has been pegged at around 7.75- 7.85 for a number of years now but we note that since China f loated its cur rency around f ive years ago from 8.2765, the Yuan has gained by around 23% to stand at 6.36 today. China of course regained sovereignty of Hong Kong in the late 1990s f rom Br itain, and one theor y we have is at some point the CNY and the HKD may have to become fungible with each other from a perspective of pure practicality and thus eliminate any room for arbitrage in those market s .
positioned for the move, thereby potentially extending and/or even exaggerating the amount of movement seen as the trade plays out.
Let’s not forget that the Swiss Franc just lost 30% of its value in three months - what if the ECB steps in to help the BoJ achieve its desired weakening of Yen by aiding the so far unilateral intervention,
some might debt purchases. Add this say
as a thank you for Japanese participation
in EU sovereign to the
prospect of a readjustment or even abandonment of the HKD
If we are only partially correct, we expect to see a move that reflects the HKD gaining in value against the JPY. If fortunate enough to be correct on both sides of this equation we could witness one of those rare moves in FX where the fundamentals align to dictate play in a market that is not
FX
peg and scope exists for this rate to plummet in line with the CNY by around 18% to around 6.36 from its present 7.78.
A Yen depreciation of 30% from current levels puts it at 100 to the Dollar, should HKD mirror CNY valuation at 6.36 this
puts over the
cross at 15.73, or roughly just
50%
F ib o n ac ci retracement of the entire move from the early 1980s.
Well, just a
theory but what’s a new year without a little hope
and
optimism that everyone gets
something they might like!
Finally, we send out season’s greetings to all our FX Trader Magazine readers and our FX market relationships; we look forward to a happy, healthy and prosperous new year in 2012. Good luck to you all.
Kevin Sollitt
Kevin’s blog is available via Bloomberg ‘BIO’ function
Te opinions expressed herein are the author’s
own, are subject to change with
market conditions and are not to be used, treated or considered as investment advice.
FX TRADER MAGAZINE January - March 2012 17
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