Weak yen and strengthening aussie

Weak yen and strengthening aussie

According to a report early this week by the Paris-based Organisation for Economic Cooperation and Development (OECD), fiscal deficits in most South-east Asian nations will narrow through 2017, leading to an improvement in public-debt levels as a percentage of gross domestic product.

This is because the sovereign-debt crisis in Europe and a slowdown in advanced economies have had a "limited" impact on South-east Asian nations, with most of the effect experienced through trade.

The upbeat tone by the OECD is certainly endorsed by United States President Barack Obama, who is currently on a leg to visit three South-east Asian nations. Mr Obama started his trip with a visit to Thailand before heading to Myanmar to speak to President Thein Sein and democracy activist Aung San Suu Kyi. His trip culminates in the capital of Cambodia, Phnom Penh, where the 21st East Asia Summit will take place.

Top news this week

Canada: Core Retail Sales m/m. Thursday.

I expect the figure to come in at 0.5 per cent (previous figure was 0.4 per cent).

Trade call 

Long AUD/JPY at 83.98

On the hourly chart, AUD/JPY has been on a steady uptrend, clearing over 250 pips in 10 days, and reaching a seven-month high of 84.50 in the process. Two factors will cause both the strengthening of the Aussie and the weakening of the yen at the same time. Firstly, the announcement by Mr Obama that the US can avoid the fiscal cliff. This will support risk.

Secondly, the market is speculating that Japanese elections next month will hand power to an opposition party that advocates more aggressive monetary stimulus.

A conversion level is seen at 83.98 and an entry for long is taken at that level after the retracement. A stop loss of 50 pips is set below the last low and we will have two targets on this trade. The first position will take profit at 84.48 and the second position will take profit at 84.98.

Entry Price: 83.98
Stop Loss: 83.48
1st Profit: 84.48
2nd Profit: 84.98

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