Since the Aug. 11 surprise devaluation of the Chinese yuan, and the follow-on Aug. 24 "black Monday" Shanghai market sell-off, forex traders have had to be more cognizant of the impact of Chinese currency and Shanghai market movements. Chinese market sell-offs are becoming nearly routine occurrences and the prospects of further sell-offs are high in the coming year as uncertainty related to Chinese economic growth endures. The weakness in the Chinese economy continues to create market uncertainly as forecasts of Chinese GDP are trending lower. The World Bank forecast that Chinese GDP for 2016 would be at 6.7%, in contrast to 6.9% in 2015 may be optimistic. This slowdown has led to further devaluation of the yuan. China now faces the possibility that the USD/CNY pair will further weaken to the 7 -7.5 range and at those levels it will spill over to the financial and currency markets. The challenge to the forex trader is how to best trade and profit from these events. Based on market reactions to the Shanghai Composite Index sell-offs, the best currency pair to trade is USDJPY.
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