China's capital outflow/FX reserves drawdown abates during global rallies and then accelerates during declines, meaning they are history's largest momentum speculators - they sponsor short-covering rallies and then they force sell assets into declines...
Recall, this was the headline last August:
"The research further factors in the yuan falling to 8 to the dollar by the end of 2016"
Of course, the prediction of 7:1 never happened, currently at 6.53. But here is what 7:1 looks like with projected reserves drawdown through June 30th, 2016. Reserves are extrapolated based upon a doubling in drawdown each 6 months. Each box is 3 months. Red is projected.
Reverse QE visualized. Reserves drawdown is directly correlated to currency decline, on an accelerating basis. $300 billion for the quarter through March may be too high or low depending upon rate of change...
With All World Index
In the past nine months, all of the currency declines correspond to global risk off periods. Blue arrow is current Yuan level. A depreciation to 7 by the end of June would be exactly in-line with the current rate of accelerating depreciation (-7% below current levels)...
Close-up view:
In short, there is a momentum feedback loop between the Yuan and global risk markets. During global rallies, capital outflow pressure is reduced, therefore, currency strengthening as seen below accelerates global rallies. However, during RISK OFF periods, China is force-selling reserve assets (Treasuries etc.) into the declines, accelerating downside momentum.
