G20/IMF – Quick Update

The meeting over the weekend was quite about the RMB issue as predicted earlier. Of course, they understand the more and lauder they clamor about RMB revaluation, the stronger the likelihood of Chinese government to resist to ending its stable currency policy.

I expect more discussion to take place in next month’s US-China Strategic Economic Dialogue and the G20 leaders’ summit in June.

Because of this development and the unlikelihood that China will make any change to its currency policy short term plus EUR weakness and Greek uncertainties, I am expecting a less dovish Fed, which will underpin performance of the USD, and naturally for market to shift its strategy towards buying Asian currencies for two reasons. Firstly, Asian currencies as a proxy for the CNY and secondly more against the JPY and EUR as opposed to the USD. It remains to be seen if the EU can work with the IMF to help Greece to put its fiscal house back in order and to prevent the debt woes from spreading to other weak EU nations such as Portugal, and Spain.

What would be more critical to watch is the April 28 US FOMC meeting with recent statement that coming out from the US is getting us closer to US Fed hiking cycle as there are signs that US recovery is showing signs of broadening. The futures market is expected to start discounting the US hike cycle if the Fed drops key terms like ‘exceptionally low rates’ and ‘extended period’. Since the start of April, we are beginning to see speculators are reversing from net short to net long positions in USD/JPY in the CFTC market.