The “Real Pain” Is About To Begin As Chinese Currency Slumps To 19-Month Lows

Thursday, April 24, 2014
By Paul Martin

by Tyler Durden
ZeroHedge.com
04/24/2014

The PBOC’s willingness to a) enter the global currency war (beggar thy neighbor), and b) ‘allow’ the Yuan to weaken and thus crush carry traders and leveraged ‘hedgers’ is about to get serious. The total size of the carry trades and hedges is hard to estimate but Deutsche believes it is around $500bn and as Morgan Stanley notes the ongoing weakness means things can get ugly fast as USDCNY crosses the crucial 6.25 level where losses from hedge products begin to surge. This is a critical level as it pre-dates Fed QE3 and BoJ QQE levels and these are pure levered derivative MtM losses – not a “well they will just rotate to US equities” loss – which means major tightening on credit conditions…

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