> The first point violates your explicit 'ceteris paribus' assumption. Not necessarily. The decision of individuals to allocate in a particular manner can be t

> The first point violates your explicit 'ceteris paribus' assumption. Not necessarily. The decision of individuals to allocate in a particular manner can be thought of as a continuous function (IIRC this is called an indifference curve). In this case, the individual’s preferences (given by this curve) remain constant. As the relative prices of goods (currency being one) adjust, the composition of the preferred basket also adjusts. This is consistent with ceteris paribus. If an individual’s preferences were assumed to change, then the assumption would be violated. > A devaluation today doesn't on its own provide information about future moves. In general terms, people cite ‘momentum’ as a trading factor. A change in price today may continue tomorrow. If you consider the feedback loops that occur as something appreciates or depreciates, it may explain why momentum can be observed. In more concrete terms, China has very deliberately kept its currency from devaluing below this level against the dollar for quite some time. The country has attempted to undermine short positions against the currency by doing things like adjusting fixings and overnight rates massively against the shorts for a brief period. Given that China is now allowing this devaluation to occur, it signals that the nation has a new exchange target in mind, presumably lower than the previous one.