GO
Loading...

Yuan Outlook is no Yawn: Strategist

Jin Mao Tower and the Shanghai World Financial Center, in Shanghai.
Kohls Kohls|F1online RM|Getty Images
Jin Mao Tower and the Shanghai World Financial Center, in Shanghai.

The yuan has had a big move against the dollar, and this strategist says there is more to come.

It's not every day the yuan rises to a record high against the dollar, but itposted its biggest gain in two months today - possibly thanks to central bank intervention. Greg Salvaggio, senior vice president of capital markets at Tempest Consulting, thinks the move is only logical.

"We think what the Chinese are doing is really what they've always done - a gradual, managed appreciation of their currency," he says. "What they did is come in overnight and really demonstrate to people 'Hey, we're committed to this appreciation.'"

Salvaggio told CNBC's Scott Wapner he thinks the yuan could rise five to seven percent against the dollar in 2012.

The euro is a more complicated story, Salvaggio says. In the long term, Tempest is bearish on the single currency, but for now, "in the short run, buying the euro at levels near 1.3050 is an excellent trade," he says, pointing to improved risk appetite, some positive developments in Europe, and the possibility that traders will have to cover short euro positions.

Salvaggio recommends buying the euro at 1.3050 with a stop at 1.2950 and a target of 1.3230.

Step lively, though - Salvaggio expects the euro be be at 1.17 in six months. "We think there's a high probability that we will not see the same numbers in the euro zone next year that are in it right now."

You can watch the whole discussion on the videotape, starting at 1:01.

Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm and repeats on Saturdays at 7pm.

Learn more: The essential vocabulary for currency trading is on Key Currency Terms. Top currency strategies are broken down for you in Currency Class.

Talk back: Tell us what you want to hear about - email us at moneyinmotion@cnbc.com.