(As featured in my paper on 22 February 2011. Click here to enlarge.)
Over the weekend, finance chiefs from the Group of 20 (G-20) nations convened for the first time this year and discussed issues ranging from trade imbalances to currency reserves.
A meeting of this magnitude is closely watched by the forex market, as the collective clout of its members accounts for about 85 per cent of the global economy.
High on the agenda was devising a “list of indicators” to identify and reduce trade imbalances among the nations. After all, failure to recognise its importance led to the deepest global recession in seven decades.
As officials endeavoured to craft an early-warning system for trade imbalances, the tone of the meeting took an unexpected twist to tackle a more pressing issue: global inflation. The sting of global inflation has already led the G 20’s up-and-coming powers, China, Brazil, India, Indonesia and South Korea, to raise borrowing costs this year.
The biggest economies were not spared either. In fact, last month alone, China’s inflation accelerated to 4.9 per cent, exceeding the government’s 2011 target for a fourth month; US year-on-year inflation reached 1.6 per cent, the highest in nine months; Europe’s inflation rate of 2.4 per cent was the fastest since October 2008, higher than the European Central Bank’s ceiling of 2 per cent.
Additionally, China also increased its reserve requirement ratio for the second time this year, and the eighth time in 12 months. Having only raised interest rates on Feb 8, the move reflected China’s urgency in taming its roaring inflation. Interestingly, I noted that China’s move was carefully timed, as it came one day before the G-20 meeting. This was done possibly to deflect on-going opinions that the yuan is undervalued.
Higher reserve standards are not “the only method that we’ll use to battle inflation, it’s about using all means, including rates and currency”, People’s Bank of China governor Zhou Xiaochuan said in an interview in Paris last Friday. “One method doesn’t exclude the other.”
Unimpressed with China’s efforts thus far, US Treasury Secretary Timothy Geithner sang the same old song of China’s currency being “substantially undervalued” during the G-20 meeting.
TOP NEWS THIS WEEK
US unemployment claims. Thursday.
Expect figures to come in at 400,000 (previous number was 410,00).
Sell USD/CHF at 0.9523
On the hourly chart, USD/CHF is moving in a downtrend, hitting a three-week low of 0.9432. I expect the downtrend to continue after prices retrace momentarily. We will enter a sell order once the price reaches the upper level of the range, and exit before it falls to the support level of 0.9432. We will have one target on this trade, and stop loss is calculated based on a 1:1 risk/reward ratio.
Entry Price = 0.9523
Stop Loss = 0.9583
Profit = 0.9463