"The Buzzword: Profit Taking" by Mario Singh

February 28th 2012 by Mario Sant Singh

I am back in Singapore after speaking in the “China International Investment and Finance Expo 2012” held in Guangzhou.

Although China has announced slowdowns in manufacturing, exports and housing, the Forex community there seems to suggest otherwise with the buzz in the Expo.

Speaking of buzz, the buzzword 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:

1. EUR/USD – shot up 300 pips
2. GBP/USD – shot up 250 pips
3. USD/JPY – shot up 200 pips
4. 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, is a retracement.

By definition, a retracement is simply a temporary reversal that goes against the prevailing trend. It does not however, signify a change in the actual trend.

The main reason for the expected retracement is profit taking.

After going “Long” on several currency pairs last week, some traders are inclined to bank in some profits. This will cause some of the currency pairs to drop off from their highs last week.

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 31^st May 2011.

There are 3 reasons for the rise in USD/JPY:

1. Rise in oil prices – With the sanctions on Iran’s nuclear program, oil prices are steadily climbing, coming just shy of $110/barrel. Japan imports about 97% of its total oil consumption, which means more Yen must be sold to purchase oil. This leads to a drop in the Japanese currency.
2. Increasing US yields – USD/JPY is a currency pair which moves in tandem with the yield differential of US against Japan. 2 year yields for US Treasuries have been rising, which will increase the demand for US dollars, thus pushing the US dollar higher.
3. Asset Purchases – The Bank of Japan said earlier this month that it aimed for 1% annual gains in consumer prices and would add 10 trillion yen to the economy. This caused bullish bets on the Yen to fall by 70% from the end of last month.

Another reason for profit-taking this week comes from the main takeaway point of the G20 meeting over the weekend in Mexico City:

“The world economy is not out of the danger zone amid fragile financial systems, high debt and rising world oil prices,” said IMF Managing Director Christine Lagarde.

Top News This Week

Canada GDP m/m. Friday, 2 March, 9.30pm. I expect figures to come in at 0.3% (previous figure was -0.1%).   

Trade Call

Long CAD/JPY at 80.60

On the H1 chart, CAD/JPY has been on a steady rise, clearing over 440 pips in 2 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 2 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

(Source: Profit Taking Likely This Week)

Canadian Currency Reaches Four-Month High Amid Increased Demand for Risk (Bloomberg Feb 25th 2012)

February 25th 2012, Chris Fournier, Bloomberg.com

According to Bloomberg, Canada’s dollar strengthened to the highest level since October against its U.S. counterpart. It traded within a two-cent range this week as retail sales fell while employment data improved in the U.S., Canada’s biggest trade partner (Fournier, 2012). 


It is also reported that Canada’s currency weakened even as crude oil, its biggest export, climbed. The loonie (C$1) fell against 14 of its 16 most- traded peers amid speculation that higher oil prices will crimp American household consumption. That might weaken Canada’s exports, about 75 percent of which go to the U.S.


Adam Cole, global head of foreign-exchange strategy at Royal Bank of Canada’s RBC Capital Markets unit in London (Cited in Fournier, 2012) states: “The U.S. dollar is generally weak, and that tends to drag the Canadian dollar down on the crosses as well."


Other important facts by Fourneir are: 
1) The Canadian Dollar  weakened 3.2 percent over the past year, according to Bloomberg Correlation-Weighted Currency Indexes, a gauge of 10 developed-nation currencies. The U.S. dollar has lost 1 percent and the euro has fallen 3.4 percent.


2) Also Fournier states that Central banks in the U.S., Europe and Japan will probably add further extraordinary stimulus by expanding the size of their balance sheets, which already equal 25 percent of their gross domestic product, Bank of Canada Governor Mark Carney said in a speech he gave yesterday in New York (2012).


To read the full article, click here: http://www.bloomberg.com/news/2012-02-25/canadian-currency-reaches-four-month-high-amid-increased-demand-for-risk.html

Mario Singh: International Forex Expert

For those that attended our events, Mario Singh would be no stranger to you. For our new friends, we want to give a short introduction on who Mario is. 

Mario Singh is a widely sought-after international Forex expert and has also appeared in ChannelNewsAsia, Smart Investor, Your Trading Edge, Personal Money, News Radio, City News, Straits Times, FXStreet and Your Choice.

Mario Singh at Forex Trading:The World at Your FingerTips Feb 12th 2012. Photographer: Victor Lai

Today, Mario Singh is founder and CEO of FX1 Academy – the first and largest Forex education company in Singapore and Malaysia. 

He has touched the lives of over 10,000 people personally, helping them move closer to their financial goals through Forex trading.

[MarioSingh.com (2012)]

On this blog, we intend to do that by assisting you to be the better trader. 

Therefore, visit us or subscribe to us to get the latest news from Mario himself on the forex world 

"Impact of China's Reserve Ratio" by Mario Singh

February 21 2012 by Mario Sant Singh.

Over the weekend, China announced a 50 basis-point cut in the Reserve Requirement Ratio.

This is essentially the proportion of cash that banks must set aside as reserves. The change will take effect on 24 February, and the figure will fall to 20.5% from 21%.

This is the second time in three months that China has cut its reserve ratio. According to ANZ Bank and UBS AG, the cut may add 350 to 400 billion yuan to the financial system.

“This RRR cut is very good news to the market. It will help release liquidity and allow banks to extend more loans,” HSBC economist Ma Xiaoping told Dow Jones Newswires.

The move is largely seen as an attempt to spur lending as Europe’s debt crisis weighs on exports and a cooling property market threatens economic growth.

Last month, China’s home prices recorded their worst performance in at least a year, with none of the 70 cities monitored by the government posting gains.

According to the National Statistics Bureau, prices in 47 of the cities fell, while home values in the remaining 23 were unchanged from December. New home prices in the nation’s four major cities – Shanghai, Beijing, Shenzhen and Guangzhou – declined for a fourth month.

Let’s explore two questions associated with the cut in reserve ratio:

1. Why didn’t China simply cut their interest rates?

2. What is the impact of the cut in reserve ratio?

China is unable to cut interest rates at this point simply because of their stubbornly high inflation rate. Inflation came in at 4.5% in January, compared to a rate of 4.1% in December. A cut in interest rates at this point will cause inflation to go even higher which will run counter to what China wants.

The main impact of the cut in reserve ratio is an expansion of the money supply. In the current low interest rate environment, the availability of extra cash sloshing around in the financial system will find itself in “risk assets” such as:

• The stock market
• The commodity market
• High beta currencies like the Aussie and the Kiwi

At the time of this writing, the second bailout tranche for Greece (130 billion Euros) has not been announced yet. If it is approved, it will provide another round of positive sentiment in the markets, causing risk currencies to move higher.

Top News This Week

USA New Home Sales. Friday, 24 February, 11pm. I expect figures to come in above 315K (previous figure was 307K).

Trade Call

Long AUD/USD at 1.0715

On the H4 chart, AUD/USD has been on a steady rise, clearing almost 1000 pips in 2 months. The cut in China’s reserve ratio will have a positive effect on risk currencies.

We will place a pending buy order once prices retrace and bounce off the trendline. Our entry will be at 1.0715. A protective stop of 75 pips is placed below the trendline, located 5 pips below the last low.

We will have 2 targets on this trade, exiting the final position at 1.0865.

Entry Price = 1.0715
Stop Loss = 1.0640
1st Profit = 1.0790
2nd Profit = 1.0865

(Source: Mario Singh: Impact of China's Reserve Ratio)

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