By Mario Sant Singh
I WAS at the China International Investment and Finance Expo 2012 held in Guangzhou recently.
Although China has announced a slowdown in manufacturing, exports and housing, the buzz at the expo and among the forex community there seems to suggest otherwise.
Speaking of buzz, the keyword this week is "profit-taking".
Many currency pairs rallied last week with the finalisation of Greece's second bailout package. Here's a snapshot of how some of them fared:
EUR/USD - shot up 300 pips
GBP/USD - shot up 250 pips
USD/JPY - shot up 200 pips
AUD/USD - shot up 155 pips
The big question is, "Will they continue their ascent this week or will there be a retracement?"
The answer? A retracement. By definition, a retracement is simply a temporary reversal that goes against the prevailing trend. The main reason is profit-taking.
One of the big moves which had traders scratching their heads last week was USD/JPY.
Although the focus was squarely on Europe, USD/JPY was making steady gains, reaching a high of 81.67 - a level not seen since May 31 last year.
Among the reasons for the rise in USD/JPY:
Rise in oil prices. Japan imports about 97 per cent of its total oil consumption, which means more yen must be sold to purchase oil. This leads to a drop in the Japanese currency.
Increasing US yields. Two-year yields for US Treasuries have been rising, which will increase the demand for US dollars, thus pushing the US dollar higher.
Another reason for profit-taking is the doubts about the global economic recovery.
Top news this week
Canada GDP m/m. Friday.
I expect figures to come in at 0.3 per cent (previous figure was -0.1 per cent).
Long CAD/JPY at 80.60
On the H1 chart, CAD/JPY has been on a steady rise, clearing over 440 pips in two weeks.
With the profit-taking on several currency pairs, including oil, CAD/JPY is expected to retrace before continuing its ascent.
We will place a pending buy order once prices retrace and bounce off the conversion area of 80.53. Entry is taken at 80.60. A protective stop of 65 pips is placed below the last low of 80.02, and below the round number of 80.
We will have two targets on this trade, exiting the final position at 81.90.
Entry price = 80.60
Stop loss = 79.95
1st profit: = 81.25
2nd profit = 81.90
The writer is the founder and CEO of FXI Academy, which conducts lessons in forex trading
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