The Forex market makers are being searched by both common traders and the heads of State

Many beginner traders start believing in some forces that drives the markets, when the tools of technical and (or) fundamental analysis don’t work from time to time. Rather than remembering that trading is a probability process, and if the rules and the laws of analysis always worked, there wouldn’t be any losers (which is impossible), they call the market makers to be the reason for their troubles. It becomes the primary task to track the manipulators and repeat their activities to make profits. This wrong approach to the market usually results in the confusion of trading with some other business.

Obviously, if you want to rule Forex, where there are executed transactions worth $5 trillion daily, you will need incredible funds. And the events of 2018 prove that even the U.S. president, who could have easily made up a team of large banks, hedge funds and investment corporations, fails to do it. His comments about the harm of the strong dollar and his discontent with the Fed’s policy result only in the temporary weakness of the U.S. dollar. The market follows by buying the dollar on its drawdowns. Moreover, Donald Trump is a common person, and he also, like many beginner traders, tries to charge the manipulator with his failures.

The markets have been actively discussing in autumn the issue of whether the U.S. Treasury department will officially announce China to be a currency manipulator. Taking into account that the U.S. president and his administration regularly emphasize the 9-percent devaluation of the yuan to the dollar, announcing China to weaken its local currency deliberately, I can assume that Steve Mnuchin is just examining the opportunities to label China a currency manipulator. To do it, according to the Trade Facilitation and Trade Enforcement Act of 2015, a country must meet three criteria:

1.   A minimum $20 billion trade surplus with the United States .

2.   A minimum current account surplus is 3 % of GDP.

3.   Regular interventions in currency markets. Strong intervention is usually thought to be the intervention, covering 2% of GDP. 

Alas, but China can be called manipulator only according to test 1. Its foreign trade surplus is constantly declining, and it won’t even reach 1% of GDP by 2023. In addition, the Chinese officials’ comments mostly directed at the yuan stabilization, rather than at its weakening. For example, the Governor of the People's Bank of China Yi Gang has noted in October that China won’t use the yuan devaluation as a weapon in the trade wars with the USA.

Dynamics of China’s current account surplus

Source: Financial Times

The yuan moves and the China’s official comments

Source: Financial Times 

From a fundamental point of view, the USDCNH rally results from the divergence in the monetary policies of the Fed and the PBOC and the growth-gap between the U.S. and China’s economies. Donald Trump has emphasized the oppositely directed trends of S&P 500 и Shanghai Composite more. According to the U.S. president, the charts of the stock indexes suggest which country is the winner in the trade war. But why doesn’t the U.S. president say the same in relation to the dollar and the yuan? There is a single reason – he needs someone to blame for his failures. And searching for a currency manipulator is the best approach. That is the human nature.

So, does it make any sense for traders to look for someone to blame for their losses? Isn’t it more efficient to go on studying the tools of technical and fundamental analyses and looking for their own way to success?

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Price chart of USDCNH in real time mode

Forex Manipulation: Reality or Fiction?

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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