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http://www.TheForexNittyGritty.com - Forex Response to Slower Chinese Growth -
Will there be a significant Forex response to slower Chinese growth?
That question came to mind after Chinese Premier, Wen Jiabao, told a Communist Party Congress that the government will set a lower growth target for this year than for last year.
This is the first time in almost a decade that China has done this.
Whether or not there will be a Forex response to slower Chinese growth depends, first of all, on whether or not setting a lower limit to growth will really slow the super-heated Chinese economy.
These continue to be boom times on the Chinese mainland, at least compared to virtually everyone else.
The growth downgrade is a reduction of predicted growth from eight percent last year to seven and a half percent in the coming year.
Even a small percentage decrease in economic productivity amounts to a lot of money for the world’s leading exporter.
The Forex response to slower Chinese growth will likely hinge on a reduced flow of foreign exchange into China, any modifications to China foreign investment limits, and the overall state of the world’s largest economies, North America and Europe.
There are two parts to this puzzle, from the viewpoint of timing.
The Chinese premier has just made an announcement and there is a Forex response to slower Chinese growth rate predictions.
But, the announcement may be premature. Europe may rebound.
The USA may come out of the recession faster than expected.
If these things happen, China will likely see continued high exports to the two leading world economies.
If that turns out to be the case, there will likely not be a big drop in China’s rate of growth, at least not in the short term.
However, markets become saturated with Chinese products.
China’s growth may end up being like that of Microsoft, very fast to a point.
When there is no more demand for products from China there will be a falloff in Chinese economic growth.
A that time the Forex response to slower Chinese growth will be based on actual import/export figures and not on official pronouncements.
Other issues such as the distinct possibility of a Chinese real estate crash could over shadow a slow and steady Forex response to slower Chinese growth.
As always with foreign currency trading, there is the initial perception and initial change in market sentiment.
What follows will depend upon whether or not initial perception matches reality.
One scenario can lead to a Forex market rally and the other can lead to an abrupt market correction.
How to trade Forex successfully is to keep in touch with both the fundamentals the drive a Forex response to slower Chinese growth and the technical signs that herald changes in market sentiment.