EUR

Qingyu.. it would be interesting to find out what the actual breakdown of those reserves is.. and how it is changing..

Soaring  reserves  fuel  China  inflation fears

By Simon Rabinovitch in Beijing



Chinas foreign exchange reserves, already the worlds biggest, soared again in the second quarter, adding to inflationary pressure and highlighting the risks in Beijings policy of holding down the value of its currency.

Reserves are a key indicator of central bank intervention in the currency market because they reflect how much foreign exchange it has purchased in order to stabilise the renminbi.

After jumping $197bn in the first quarter, reserves were up another $153bn in the second quarter.

That influx of cash compounds Chinas inflation troubles. Consumer prices were up 6.4 per cent in the year to June, the highest in three years. Although many analysts expect inflation to slow over the remainder of the year, the accumulation of reserves lays the groundwork for a continuation of fast money growth and so will limit the scope for any easing of price pressures.


The current intervention of the Peoples Bank of China has been piling up more and more foreign exchange reserves. This is not sustainable, said Li-Gang Liu, head of China economics at ANZ Bank.

A mild rebound in money growth in June illustrated that China remains flush with cash, even after a succession of interest rate increases and other moves by the central bank to restrict bank lending. The broad M2 measure of money growth was up 15.9 per cent year on year in June, accelerating from 15.1 per cent a month earlier.

China raised interest rates last week for the fifth time in eight months. Economists are now debating whether Beijing will raise rates again this year to damp down inflation or desist from further tightening amid signs of a growth slowdown. Wen Jiabao, the premier, said on Tuesday: We must slow price increase, but we also must avoid causing big fluctuations in growth, he said after meeting officials and business leaders. A stronger renminbi also has a crucial role in easing inflation, as it would reduce the cost of imports and restrain money growth by adding less to foreign exchange reserves.

Nevertheless, despite repeated pledges by China to make its exchange rate more flexible, the renminbi has climbed just 2 per cent against the dollar this year and has actually fallen against a basket of currencies of its trading partners. That sluggish performance and concerns about Chinas slowdown have led traders to scale back bets on renminbi appreciation.

Chinas total foreign exchange reserves stand at $3,197bn, equivalent to about 50 per cent of gross domestic product and almost three times more than any other nations.

Nearly $47bn of the $153bn second-quarter increase came from Chinas trade surplus, with investment inflows and interest earnings accounting for much of the rest.

euro still short
however the test will come at the PP

you are so right Dave.. technicals mean sh.. at present anyway.. option rules, OK.. but maybe not "do not touch variety":-)

"..several traders batting around the term "dragonfly
doji" which is said to indicate a basing pattern in the pair, akin to an
outside reversal day. That said, under the current environment, some
remain wary of trusting technicals, especially given the headline risk
and the potential for further tape bombs.."

G'day all.. might need to research on that blow job in skipper idiom thing:-)

anyway looks like Sir is sticking to his guns being long EUR.. like Cat and his trusty Bot.. there Sir and his model Tunnel.. like in any family they sometimes fight each other:-)