JULY - SEPTEMEBER 2015

TRADER MAGAZINE

OP T I ONS S T R AT E G Y

globalyuan

THE GROWING GLOBAL ROLE OF THE RENMINBI, AND CHINA’S GROWTH PATH TO INTERNATIONALIZATION

USINTEREST

RATE HIKE

CENTRAL BANK SEASON H E AT S U PTREND TRADING MADE SIMPLE

COT & V O LU M EP R O F I L ESTR ATEGY

Y E NM I D Y E A RR E V I E W

growing

FXCONTENTs

THE GROWING GLOBAL ROLE OF THE RENMINBIAn analysis of the liberalization of the Chinese currency and its impact on the global financial markets

48

Use the COT report and Volume Profile to see the market from a different angle28

07 EDITOR’S NOTE

YUAN SPECIAL REPORT

6 0 Ch ina’s Gro wth Path to Internationalization: fundamental analysis and Yuan trading recommendations

42 A Supranational Reserve Currency: The solution to reach global stability and avoid conflicts of interest

58 Interview with Yi Gang, State Administration of Foreign Exchange Director

GLOBAL MARKET WATCH

12 What’s in store for investors in the second half of 2015? A look at the major issues which will create volatility on the market

MONETARY POLICIES

18 Central Bank Season Heats Up. How to interpret Central Banks’ decisions to find major directions and trends for weeks, months, and even years

FUNDAMENTAL ANALYSIS34 Mexico wants to attract more investors: Implications for the USDMXN

CURRENCY WATCH:24 Japanese Yen: Breather continues

OPTIONS STRATEGY64 FX Options, an elephant in the room: How to generate returns from anomalies and biases in the FX option market

TECHNICAL ANALYSIS70 Trend Trading Made Simple: A trading method which uses the basics of technical analysis combined with price projections

TRADING PSYCHOLOGY36 How to eliminate emotions from trading by gauging the emotions surrounding the market and applying some consistent rules

73 Seven trading affirmations to transform your trading success. Discusses the positive, battle-tested trading affirmations based on the habits of successful traders

ASK THE COACH

15 How to identify and control overtrading?

BOOK REVIEW

68 FX Option Peformance, by Jessica James, Jonathan Fullwood and Peter Billington

TECHNICAL REPORTS:

76 Trends and Targets:Majors US Dollar Rate/Major Cross RatesSelected Asian FX Rates/FX Emerging Markets

76 Featured Markets: USD/JPY, EUR/SEK, EUR/CZK, NZD/USD

80 CONFERENCES & SEMINARS

INTERNATIONAL DATA

81 FX Spot Monitor82 Central Bank Rates83 Economic Data - FX Poll84 Markets View

85 ECONOMIC CALENDAR

REVOLUTIONIZE THE WAY YOU TRADE

26US INTEREST RATE HIKE: A MATTER OF WHEN, NOT IFWhat the next three months hold for the US dollar

FX TRADER MAGAZINE July - September 3

The growing global role of the Renminbi

The world needs to be prepared for a system where the dollar, euro and yuan will all be consequential international and reserve currencies

Capital account l ibera l i sat ion will accelerate this year, making the renminbi more freely usable

Progress of capital account liberalisation and further renminbi i nter n at ion a l i z at ion will have a deep impact on the global financial markets

by Li Cui

The international use of the renminbi has risen dramatically in the past five years. The renminbi is now the second most used currency in trade finance and the fifth most-traded payment currency, according to Swift. The offshore renminbi market has also sprouted, with renminbi

clearing centres emerging in Australia, Germany, Hong Kong, Singapore and the UK, among others, along with trillions of yuan of bilateral currency swap arrangements between the People’s Bank of China (PBOC) and foreign central banks to provide liquidity support when needed. To

observers, the growth of the renminbi’s international role, along with China’s global investment, epitomises the country’s expanding global ambition, against the backdrop of its fast economic expansion and the further integration of its economy into the global system.

FXMACROECONOMICS

48 FX TRADER MAGAZINE July - September 2015

MACROECONOMICSFX

The shortcomings and vulnerabilities of the current global financial system, the rising outreach of Chinese trade and investment, and the progress of China’s financial and capital account reforms, have all shaped the renminbi’s steady rise on the global stage.

A multi-pillar i n t e r n a t i o n a l m o n e t a r y system with the renminbi as a reserve currency, supported by a more open capital account and a wider floating currency, will deliver benefits to both the global financial order and better growth domestically.

SHORTCOMINGS OF THE GLOBAL MONETARY SYSTEM

A global financial system that uses a single fiat money as its reserve currency faces an acute problem of discipline. The rest of the world relies on the reserve currency for transactional and savings purposes, generating huge demand for the designated reserve currency. This allows the reserve currency country to spend more than its export revenue

allows, since its international debt does not face the pressure of a sell-off and squeeze by investors, as in the case of non-reserve currency countries. Such an “exorbitant

privilege” - as Valéry Giscard d’Estaing, then the French minister of finance, noted in the 1960s - could give the reserve currency country an enormous advantage in its economic growth and management. In addition, the dominant role of the dollar means that the US effectively acts as a global central bank, and US monetary policy has great influence over international liquidity and economic conditions in other parts of the world.

The dollar’s role in the international monetary system has been under continuous debate since it replaced sterling as the reserve currency more than 70 years ago. While the dollar

has facilitated the liquidity of the global financial markets, p r o v i d i n g anchors for countries during periods of macro stabilisation, the downside of the system has also been prominent at times. The US balance of payments crisis in the late 1960s resulted in the collapse of the Bretton Woods mechanism as the dollar de-pegged from gold. In the decade before the global financial crisis,

US fiscal and external deficits rose substantially, leading to concerns about global balance of payments imbalances. However, the demand by foreign companies and governments for dollars helped to keep the US interest rate low, enabling it to fund large current account deficits while fuelling domestic asset bubbles (such as real estate). A report from the United Nations Conference on Trade and Development (UNCTAD) attributed the build-up of global imbalances

The dominant role of the dollar means that the US effectively acts as a

global central bank

FX TRADER MAGAZINE July - September 49

FXMACROECONOMICS