Finance ministers and central bankers are meeting in Iqaluit, Canada, for a G-7 meeting. High on the agenda are currency exchange rates, although the session appears to be academic in style, rather than policy setting. Report on the subject was prepared by  Canada’s Finance Ministry and covers inflexibility of currencies of “some Asian countries” (read China). Apparently Chinese officials realize a more flexible exchange rate is in their economy’s best interest, and indicated such a shift is “likely.” Yeah, right. We have heard it for a long time now.

Report blames US trade deficit and the account surplus in Asian countries for widening current recession. This type of major imbalances must be avoided in order to return to sustainable growth. Interestingly enough, pegged Yuan or oversized foreign reserves of China were not the original cause behind the financial meltdown of 2008. The biggest single culprit was the out of control US consumer spending, fueled by low interest rates and reckless lending (and borrowing). It seems that all that was made easier by ever increasing purchases of US debt by China and other countries, which helped to keep interest rates at low levels for extended period of time. Of course, had they not done that, the cost of financing American debt would have been very high, pushing rates up across the board and slowing economic expansion. Seems no matter what, there is always an evil lurking somewhere. Only which is the lesser one?

It doesn’t look like this G-7 meeting will produce anything with enough power to move the markets, so chart analysis takes front stage. Following explosive moves on Thursday, everything settled down a little bit on Friday with very few clues for next moves. Hard to say right now if the trends will resume after the open, or some corrections are more likely. Hourly chart of AUD-JPY is a good example.

Price found support at 76.20 or so and bounced during last hours of trading. Looks like a range is being formed, about 200 pips high. Daily chart indicates that this 76.20 level is very important, breaking it could move the market down another few hundred pips, but the same could be said about upward correction. For that 78.15 would have to be broken first. I will go over the daily chart in next update, once we have one more day of price history. For right now, selling under 76.20 with 120 pips objective is a possibility for this 1H graph.

Other than that, I want to focus on gaps. If they form, will be looking for trading opportunities. As always Yen pairs are probably best candidates, as well as commodity currencies, especially since they had so much volatility recently. Should have much better idea about next moves at this time tomorrow.

Mike K.