Shorting the Yuan

Featuring Joeseph Trevisani

Joseph Trevisani, senior analyst at FXStreet, lays out his bearish trade on the Chinese yuan. He explains how to short the yuan using currency proxies in this interview with Justine Underhill. Filmed on July 9, 2018.

Published on
11 July, 2018
Topic
China, Trading, FX
Duration
11 minutes
Asset class
Currencies
Rating
2

Comments

  • RJ

    Rohit J.

    12 7 2018 22:30

    3       0

    The underlying thesis has merit but the instruments and the levels chosen suggest very limited knowledge of the underlying markets.
    1. CNH is “managed” to a much lesser extent compared to a MYR or an IDR.
    2. In fact, there is no more offshore NDF contract that is traded for MYR, because the central bank clamped down on offshore trading a year back. Which means that there is zero speculative interest, implying that
    - Central Bank is in (almost) complete control of the currency
    - 99 per cent of the Real Vision audience has no way to put on a trade on this currency pair
    3. Due to the heavily managed nature of MYR, vols are in the gutter and for it to depreciate from 4.0250 to 4.5000 (approx 11 per cent) it would take many many months.
    4. IDR entry level of 14100 hasn’t traded in more than a month. In fact we are trading currently at the specified TP level of 14400.
    5. IDR is still subject to periodic bouts of volatility and the target move of approx 2.5 percent (14100 to 14400) can occur in a week or two, completely at odds with the target move of 11 percent in the MYR.

    • DS

      Dusko S.

      13 7 2018 10:38

      0       0

      To echo Rohit J.'s comments, why trade derivatively when one can go long US$/short Renminbi with CNY. It's logically flawed to avoid a direct trade on grounds of "control" if the call is that the currency will be control-devalued. I shorted RMB via CNY put options based on Kyle Bass's call revealed on RV last fall. Unfortunately, the timing of the devaluation was off by a few months. I did not roll over the position. It would be great if RV would follow the steps of the great Louis Rukeyeser (for those old enough to remember) who kept a tally of calls his guests made on his famed show ~30 years ago.

    • DS

      Dusko S.

      13 7 2018 10:38

      0       0

      To echo Rohit J.'s comments, why trade derivatively when one can go long US$/short Renminbi with CNY. It's logically flawed to avoid a direct trade on grounds of "control" if the call is that the currency will be control-devalued. I shorted RMB via CNY put options based on Kyle Bass's call revealed on RV last fall. Unfortunately, the timing of the devaluation was off by a few months. I did not roll over the position. It would be great if RV would follow the steps of the great Louis Rukeyeser (for those old enough to remember) who kept a tally of calls his guests made on his famed show ~30 years ago.

  • zy

    zhang y.

    12 7 2018 00:28

    4       1

    This guy has a tendency to promote trade ideas when the price has already moved, what kind of quality is that?

    • DR

      David R.

      12 7 2018 21:08

      0       0

      Expecting the trend to extend? Most analysts do for this pair, and the dollar in general, which itself is a yellow flag. To wit, the big screaming headline about dollar strength in the WSJ around June 26, five months after the swing low! And the cover story on the Economist magazine in December 2016, right at the decade high for the dollar before it began its current secular collapse.

  • zy

    zhang y.

    12 7 2018 00:27

    0       1

    Last trade idea from Joseph Trevisani failed, why should be trust him now?

    • DR

      David R.

      12 7 2018 21:09

      1       0

      Most successful technical traders actually have more losers than winners. The key is to manage trade risk. That is, your numerous losers are smaller and you get a few big winners that you ride. For overall profitability. Easier said than done tho, lol.

  • DR

    David R.

    11 7 2018 23:55

    1       1

    I have no idea how the trade dispute will unfold or end, but I do know that, per the excellent UBS and Swiss Banking presentations at the wonderful BoAML global professional conference annually held in Hong Kong, for 2017 the US consumer economy was $5.1-trillion vs $7.2-trillion for China. For 2018 the expectation is US $5.3-trillion vs China $8.5-trillion. So, with China having a significantly larger economy (both consumer economy per the Swiss Banks and overall per the CIA Factbook), and an economy growing much faster year-after-year, I fail to understand how the US has a trading "advantage" per the presenter and Mr Trump. Bear in mind that China is the largest trading nation in the world and the #1 trading partner of most nations now. The US, becoming increasingly unimportant economically (perhaps why the EU, which is also a bigger economy than the US, is spitting in the face of US demands on Iran, etc).

  • DR

    David R.

    11 7 2018 23:40

    1       0

    The MYR is also a managed, or at least semi-managed, currency. And FWIW the new strongman PM Dr. M. has stated they seek to set USD to 3.8, down from its current 4.05 (and down from 4.5 last year). Let's see what their new BNM (central bank) Governor has to say shortly.

    I'd be biased to short USD strength here; same goes for USD across the board. Trump and Mnuchin clearly and publicly seek a "weak dollar", which is unprecedented in modern US history. How long until Trump begins twitter rage against the Fed to try to lower interest rates and the dollar?

    Also, technically the dollar is in a bearish downtrend since Dec 2016 which is accelerating; the 5-month counter trend rally is over and the next leg down could be stronger than the previous 13-month collapse.

    • DR

      David R.

      11 7 2018 23:48

      0       0

      PS. I voted thumbs up, not down, even tho I don't fully agree with the discussion, because I appreciate his thoughtful point of view. Always helpful to consider different opinions!

    • DR

      David R.

      11 7 2018 23:48

      1       0

      PS. I voted thumbs up, not down, even tho I don't fully agree with the discussion, because I appreciate his thoughtful point of view. Always helpful to consider different opinions!

  • DR

    David R.

    11 7 2018 23:31

    1       0

    Respectfully disagree with using USD/MYR as a proxy. One, it's also a currency that does NOT trade freely and is in fact NON-convertible and actually closed most of the day. Two, it is very much a petro currency, and is highly correlated with Brent Crude, notwithstanding the recent divergence due to the recent shocking political events.

    Disclaimer: I'm a Singapore based mgr , having happily escaped the failing high-tax socialist states in North Amerika for tax-free Singapore, so I know a little about neighbouring MYR and INR. As with most things, boots on the ground provide an advantage.

  • DR

    David R.

    11 7 2018 23:19

    2       0

    Yuan devaluation is an extremely effective antidote to Trump admin tariffs. This is very bad news for the world because it's globally deflationary; the last *small* Yuan devaluation over 3 years ago caused economic tremors worldwide and global equity markets to tank by early 2016 (saved only by the extraordinary so-called Shanghai Accord of central banks). And the big difference now is that China is much more effective at containing capital flight as it choose to devalue the Yuan to trump Trump's destructive tariff policies.

    At the end of the day, Trump's tariffs are a massive tax grab that'll badly hurt middle class US consumers. Meanwhile, the rich revel in the corporate tax cut and resulting share buyback. All setting up the coming mega-depression of the 2020's. Which will end with China being, by far, the #1 dominant economic and military power in the world a decade later. Read up on Armstong, etc.

  • CR

    Chris R.

    11 7 2018 22:59

    1       0

    Not a whole lot of liquidity but there is a US futures exchange option: https://www.cmegroup.com/trading/fx/emerging-market/usd-cnh_contract_specifications.html

  • Nv

    Nick v.

    11 7 2018 11:53

    2       0

    The risk is on the US side.
    The bulk of the trade deficit is due to US companies manufacturing in China, and re-exporting back to US
    The US consumer loses when these companies pass duties onto them
    The ignorance about trade in the US is mind-blowing
    The Chinese will punish Apple, GM etc selling in China by stopping US imported product purchases - see Senkako Island boycott against Japan and THAAD boycott against South Korea - Volumes fall >50%

    • RK

      Robert K.

      11 7 2018 13:11

      1       0

      Agree, although the assumption that anybody 'really' cares about the US consumer is probably false. Despite all the rhetoric what we are seeing is a culmination of the biggest wealth transfer from Jacks the plumbers to Jamies the bankers and the C-suite.

    • RK

      Robert K.

      11 7 2018 13:45

      0       0

      what I meant is not 'transfer' of wealth per se but distribution of the new (mostly paper) wealth.

    • DR

      David R.

      11 7 2018 23:11

      0       0

      Why would China punish Apple imports when Apple manufactures (and more recently researches) in China? It's almost like a defacto Chinese company.