Forwards pricing in lower volatility

The inarguable fact that makes trouble in the currency market inevitable is this: China is slowing.

The WSJ today looks at Chinese yuan, which has been relatively stable in the past 5 months but will remain plagued by the underlying factors that led to trouble last August and in January

.The thinking is this period of calm will last at least until the Chinese yuan is added to the IMF's SDR and through the G20 meetings in China but later, the inevitability of slowing and the necessity of reforms may lead to trouble.

It could already be brewing with Goldman Sachs highlighting a rise in ouflows in July. Of course, the exact timing is a bit like guessing when a bubble will pop -- it will happen when Chinese people decide they no longer want to keep their money in yuan.

One thing that could speed of that decision would be a Fed hike that suddenly makes dollars much more desirably.