BY Mario Sant Singh
Director of Training & Education
Many traders and investors around the world were focused on the G20 meetings which were held in Moscow over the weekend. Everyone was trying to pick up clues regarding monetary policies and economic growth - all in the hope of taking a position in the market.
The spotlight was on Japan, as many predicted that the G20 ministers would specifically target Japan for publicly advocating a sliding yen. However, the G20 finance ministers and central bankers ended talks by pledging not to “target our exchange rates for competitive purposes.” Additionally, they signaled that Japan has scope to keep stimulating its stagnant economy as long as policy makers stop “verbally advocating” a weak yen.
In summary, the G20 talks were a major win for Japan. Not only was it not accused for starting a currency war - in which countries seek to protect exports through deflation - it was in fact lauded for its policies to flight deflation and develop its economy.
The yen has fallen 8 per cent against the dollar in 2013 alone, as Prime Minister Shinzo Abe continuously campaigns for looser monetary policy to revive an economy plagued by 15 years of deflation and three recessions in the past five years. With the outcome of the G20 talks and the pledge by the Bank of Japan to start making open-ended asset purchases from 2014, I expect the yen to continue falling against the US dollar.
Indeed, the markets took the G20 outcome as “risk positive” which caused Japanese shares to rally. On Monday’s opening, Toyota, the world’s biggest carmaker, rose 2.5 per cent as the yen fell, boosting earning prospects for itself and other Japanese exporters.
Although Japan had cause for celebration, it wasn’t the same story in China, the other Asian giant. Retail sales in China during the week-long Lunar New Year festival rose at the slowest pace in four years due to a crackdown on extravagant spending by officials and state-owned companies.
Sales at shops and restaurants monitored by the Ministry of Commerce increased 14.7 per cent in the Feb. 9 to Feb. 15 period from the year-earlier break to 539 billion yuan (USD86 billion), the ministry said. That was down from a 16.2 per cent pace in 2012 and the least since a 13.8 per cent gain in 2009, according to previously released figures.
The silver lining to China’s drop in retail sales came in the form of their Gross Domestic Product (GDP) for the last quarter of 2012. Figures came in at 7.9 per cent in the final three months of 2012 compared to 7.4 per cent in Q3, halting a seven-quarter deceleration.
The World Bank forecasts China’s expansion will quicken to 8.4 per cent this year from 7.8 per cent in 2012, more than four times the pace of the US.
Top News This Week
Europe: German Flash Manufacturing PMI. Thursday, 21st Feb, 4.30pm.
I expect figures to come in at 50.4, (previous figure was 49.8).
Long USD/JPY at 94.35
On the 4-hourly chart, USD/JPY is moving in a strong uptrend. The outcome from the G20 meeting over the weekend bodes well for further yen weakening. USD/JPY is currently moving in a range with support located at 92.19 and resistance at 94.26. I expect a breakout from the resistance with the yen sliding further.
An entry is taken at 94.35 several pips above resistance. A stop loss of 100 pips is placed near the midpoint of the range, as I do not expect the price to retrace back to the midpoint. We will have two targets on this trade, exiting the first position at 94.85 and the second position at 95.35.
Entry Price = 94.35
Stop Loss = 93.35
1st Profit = 94.85
2nd Profit = 95.35
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