The strange case of RMB

I read the following report a few days ago which is typical and fashionable of what the fundamental analysts "think" these days:-

(吉隆坡8日訊) 早前在隆市舉行的Citigold理財領導系列研討會，Citi大中華區經濟學家沈明高博士（Dr Minggao Shen）討論了這種更變的進展與前景，及人民幣之重新估值。
沈明高博士之前是金融雜誌《財經》首席經濟專家，並曾任花旗駐北京的中國首席經濟專家。
他指出，到了2020年，人民幣有望崛起成為全球首五大貨幣之一，但是交易量份額仍稀薄，極可能在未來10年配合持續高過平均數的經濟成長，而在貨 幣交易量上迎頭趕上。
他相信，人民幣短期內可能受到政治與金融情況的制約--與美國的政治關係趨向緊張，加上歐洲的金融情況受到關注，可能延遲人民幣重估。這更加凸顯人 民幣須擴大跨境交易，並繼續預期人民幣今年內會與美元脫鉤。

The American politicians have been screaming /shouting / hurling abuses at this one. They blame their nation's woes on the RMB being manipulated and undervalued. These days  it seems not only the Americans are harping on the RMB's further appreciation, but the Euroland has also joined in the hate chorus. The world has been watching  American senior officials periodically visiting China trying to pursue them gentlemanly / straight  waving their fists trying to push for more RMB's appreciation . Despite what many Chinese educated leftists in Asia were saying, the Americans actually were having some success in getting what they wanted. It may not be 100%, but they did get some. Even though the Chinese have been denying it with their mouth, they have in fact started RMB's appreciation since 2006. (chart 1)

What we have been reading/hearing from the fundamentalist "experts" is that China may eventually allow their currency to appreciate further. Of course they base their opinions on the strength of the Chinese economy.

Meanwhile many friends of mine who somehow seem to have fallen in love with the RMB have been pestering me on how much more upside can the RMB go. 

So I take a look at its chart and append the following observations:-

In the daily chart, the first thing you would see the great appreciation started in 2006. Then you would notice the current tight range starting from mid August last year to now. I immediately notice the double bottoms as at mid July, 2008 and early May, 2009 which comes a very nice positive divergence found at the MACD indicator. A positive divergence here mean prices did not go lower (appreciate further) but did a double bottom, but the MACD did not follow suit and instead do a series of higher troughs. This is usually a very bullish sign for the market to go great distance upward (means RMB depreciating).

The current tight range bounding is reflected in the D+, D- and ADX all are working below their 20's signal line which is telling us this particular market is really dead. in order for this market to move either direction, we need to see either the D+ or the D- whip upwards above the 20's. With that, we would get our confirmation on its next major direction.

At the weekly chart, I am getting a similar bullish divergence at the MACD. Since this is in place, I would usually conclude it may be signaling a terminal point. That is to say, we may soon see RMB going into a depreciation mode. With the MACD fast approaches its zero signal line and the Stochastic also going near its 50's signal line, action time may not be too far away. But the weekly ADX, D+ and D- are also same as those in the daily chart - all 3 are below the 20's signal line. Then on the other hand, with the currently squeezing Bollinger Band, the ADX gang is playing the classic preparation works for a major "Mother of All" explosive move. I am so thrilled by such chart readings !

With RMB remains one of the world's most governmental manipulated currency, this range bound may last for weeks or even months before something gives (this also happened to the Japanese Yen). So I would mark out a short horizontal line at the prior peak of the D+ as an initial signal that RMB starts its next major move. Of course i always prefer to see the ADX rises at the same time too.

So to summaries the above :- RMB has been range bounding for sometime now and the range is getting tighter. I think RMB is going to blow up (depreciating) soon. And I think it will blow up in a "Mother Of All" manner.

I as a student of technical analysis I only study the charts for hints of the next market move. If my bearish readings on the RMB becoming fact, I will leave all the "explanations" to the fundamental "experts" when they wake up from their usual slumber. If you insist for  reasons for this bearish scenario, I would think that you should keep an close watch on China's red hot property market and their unregulated/unreported provincial governments' bottomless borrowings. Any drastic fall in their properties prices will push up the whole banking industry's NLPs substantially. And with Chinese' usually questionable  statistics ,  the question to ask is:- Can Chinese financial system take a beating like those of America 's 2008 ?