Chinese Reserve Requirements Increase

China has announced that they are increasing their bank reserve requirements. This is a fancy way to say that the economy is getting too hot and they want to cool it off by extracting some money out of it. This should lead to an increase in interest rates.

While the rest of the world tries to figure out how to go negative on interest rates, China continues to prosper.

The announcement led to some wide zig zags in the forex markets. The initial reaction was wiping some risk off the table with large pullbacks, but a few sessions later, it seems that the ultimate reaction was the creation of a market that is looking for risk.

This hasn’t translated well for dollar buyers. The dollar is on the ropes against almost everything. No definitive break in any direction yet, but one should be coming one way or another soon.

For the first time in several years, the currency markets did not take off like a shot during the first week of the year. They actually remain range bound with no new trends in play, yet. I wouldn’t count on things staying that way for long.