Monday, February 15, 2010

The USD vs. Chinese Yuan cross exchange rate long term.

Many investors / traders have asked us about the future of the Chinese Yuan. Well, in short here it is:

The Chinese Yuan has been limited by trading bands for more than 25 years and yet there has been some major moves in the cross exchange rates between the two currencies. There is also a relatively clear wave structure in the USD / Yuan cross exchange rate over the last 3 decades despite the trading bands imposed by the Chinese authorities.

The USD rallied relative to the Chinese Yuan in a clear 5 wave structure from 1981 until 1994, illustrating a Fibonacci 13 year pattern, which marked the top in the USD / Yuan rate. The USD has been in decline relative to the Chinese Yuan since then. Currently the USD / Yuan rate is 6.8.

We expect the USD / Chinese Yuan cross exchange rate to fall to a little more than 5 long term. This is approx. a 20% decline from today's levels.

However, there could be some volatile dollar rallies before the USD / Yuan decline continues.

A large multi decade structure will be completed in the USD / Yuan cross exchange rate when our target is reached. See our long term currency analysis to learn what happens then.

The above is an extract from our February 2010 investment newsletter to be published this week.

Geir Solem
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