China’s PBOC made its move against the hedge funds on Monday, while many hedge fund managers were enjoying a long weekend in the Hamptons. With more than $3 Trillion of foreign reserves, this is a fight that the PBOC is likely to win, provided it stands firm. Hedge funds betting on a collapse of the Yuan can leverage their positions, but that makes them vulnerable to margin calls. Driving the Yuan below 6.50 to the Dollar may force some to cover their shorts, which would further strengthen the beleaguered currency.
China’s sell-off of foreign reserves has caused the Dollar to fall, in the midst of a flight to safety. Retracement that respects resistance at 97.50/98.00 would indicate a decline to test primary support at 93.00. Decline of 13-week Twiggs Momentum below zero warns of a primary down-trend.
Flight to safety has spiked demand for Gold. Expect retracement to test support between $1150 and $1200/ounce. But respect of either level would confirm a trend reversal (after recovery above $1200 completes a higher trough).