Right now, European Union finance ministers are meeting in an emergency session devoted to supporting the Euro. The objective is to stabilize the common currency and keep speculators from targeting weaker Eurozone members. There is a sense of urgency, with authorities pushing to have “something” approved by the time stock markets open. Quote from Spanish Finance Minister Elena Salgado : “We are going to defend the Euro. We have to give more stability to our currency … We will do whatever is necessary”.

Currently, this “something” is very vague. All kinds of proposals are being tested, like extending financial support that has already been available to some EU nations outside of the Eurozone. Also,  specific loan guarantees are being discussed. In effect, that would create something similar to what in US is the TARP fund, which would be comparable in size to its American counterpart. For all practical purposes this also could be called a “stimulus” fund, putting Europe where it was at a start of the recession, at least psychologically. More announcements from Brussels are expected throughout the day.

Not that Europe is united on how to tackle financial problems, or even if to face them together. Germany finally approved its share its Greece bailout share, but that happened over a stiff opposition and government is already paying the price. In the state election in North Rhine-Westphalia, Germany’s most populous state, Chancellor Angela Merkel’s alliance just lost majority of votes. This also means loosing majority in upper house of Federal Parliament, which guarantees difficult times ahead for running the country. Things in Europe might get even more confusing that they already are, no doubt creating volatility in currencies.

And Forex has been volatile already. Crazy swings from Thursdaysettled down on Friday, without giving much clues for next moves. In fact, many crosses closed right in the middle of Friday’s range, indicating market’s indecision and luck of commitment by participants. Seems that everybody is waiting for more news, a catalyst which would give a reason to assume position in one direction or another. When it comes to Japanese Yen pairs, longer term bias is down.

For example, AUD-JPY moved so much last week, that it came very close to critical support at around 76.00. Should this break, chances are high for another 1000 pips drop, or perhaps even 2000, all the way down to lows from 2008. It will not happen right away, but 76 level must be watched closely. Could turn out to be pivotal point for all Yen crosses.

For more immediate purposes, high and low from Friday could be good entry points. As mentioned before, my general bias for these pairs to move down over time, but we can easily see a swing up first. Breakout from this range should produce a move on the magnitude of 200 pips, and, given how recent volatility, this could easily happen within one day.

If we see more of this panic, money flowing away from commodity currencies and GBP, Swiss Franc could also see sizable appreciation. It is one more safe haven, even if SNB threatens intervention. While on the subject, we might expect similar comments from BOJ or other Japanese officials, maybe as early as today. After all, they increased funds for this specific use.  But will BOJ dip into this account? Surely, they are not happy that Yen is getting stronger.

So, for right now, the post weekend open, news from Europe seem to be name of the game. I’m not even going to speculate what exactly they will agree on doing and how markets might respond to it. Just have to wait and see. At the same time, currencies should remain volatile, so opening gaps are possible, something to look for. As of this writing, about 2.5 hours before most retail brokers open, early quotes suggest stronger Euro and flat Yen. But this can change.

Mike K.