Ralph Shell @ 1:49 PM, Monday October 04 2010
If you have only $100 or $200 million to invest, no problem. There are many markets where investments of this size can be accommodated, barely making a ripple in the market's waters. When the size of your investment fund reaches the trillions, your positions are so big you are no longer an anonymous player. As a big player with deep pockets, you attract a following. Your followers may not know why the position is being assumed, but the trend is up because a big long is being established and that is good enough. Weather you are the manager of a bond fund, or the head of a country with a currency surplus, once you have your position on, you then explain and praise the logic behind your position.
Over the weekend Market Watch reported:
"Chinese Premier Wen Jiabao made a show of Beijing’s
support for Greece on Sunday, saying that China will continue to buy
Greek government debt when the country reintroduces open sales,
according to reports.
Wen also unveiled a $5 billion credit facility to enable Greek shipping
companies buy Chinese ships, in addition to pledges of expanded trade
and investment ties.
“We hope that by intensifying cooperation with you, we can be of some
help in your endeavor to tide over difficulties at an early date,” Wen
told Greek lawmakers in an address Sunday, according to a report in The
Wall Street Journal."
In this case Mr. Jiabao is not only an astute manager of funds, but a good friend of those nation's whose spending habits have left them down and out. For months we had suspected that the Chinese were supporting the euro, in addition to the yen. This is now being confirmed, though the position size will remain a mystery.
For a global currency player, the Chinese support of the yen and the euro make perfect sense. The yuan's value is tied to the USD, and a weak USD relative to the euro, now supported by the Chinese, results in the more Chinese exports to Europe. The strong yen, bolstered in part by the Chinese buying, has put the Japanese exporters at a disadvantage when competing in the export market with the Chinese.
Friday's COT report revealed the continued growth of the open interest and the USD bears. The open interest increased by a little of 80,000 contracts, and the total spec positions short the USD and long something else was up to over 247,000 contracts. Daily trade in the euro continued to exceed the total open interest, the euro option open interest was above 331,000 contracts, of which puts accounted for over 190,000 contracts. Since the ending date of the last COT report, trade in the currency futures has been active and the open interest has increased further.
This week the US unemployment report and the non farm payroll numbers are bound to keep markets volatile. The market fears, (perhaps hopes) that bearish reports might provoke Helicopter Ben Bernanke to immediately shower the country side with brand new dollar bills. Perhaps Bernanke's financial solutions make sense to Washington but they do not sell on Main Street, and the pending election probably means QE 2 will be deferred.
We don't know how big the Chinese investment in Europe and the euro really is, but by the time we all know about it, rest assured it is priced in the market. With the spec so very active long the euro, the market will need bearish USD news and more specs buying. We think the market is loaded with longs, and due for a correction. Strength should be sold.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.