European countries are debating measures to prevent the current mess from happening again. In principle, everybody blames budget deficits of individual countries for European troubles, the trick is how to insure that member states stay within agreed limits in national deficits. Existing mechanism, possible heavy fines, has never been enforced and became largely ignored, in effect turning blind eye to practises of some countries, such as Greece. Now, new sanctions are being proposed.

Germany is the biggest proponent of new and harsher penalties for the rule breakers. Among some of the proposals are stripping EU governments of voting rights, withdrawing union development funds or even ejecting them from the Euro currency. This would amount to huge changes in EU treaties and would need for each country to amend respective national laws, a lengthy process, probably destined for doom. It seems that a more balanced middle ground must be found. So, in spite of bombastic headlines and talks of unity, not much will change immediately. Current talks by finance ministers is only laying groundwork for real changes. These could be decided on during EU leaders summit in October. We’ll have to wait and see what happens. 

It appears, though, that heavy rhetorics did mange to calm markets, if only temporarily. The Euro seems to have found an intermediate term bottom, and trading ranges contracted considerably for just about all currencies. Even the Yen pairs stopped falling today, or at least paused their declines. Out of the two crosses I have been tracking here only CAD-JPY brought new trade. As described in How much stronger will Yen get? , I was using hourly chart, looking for smaller moves.

I went short at 84.37. Not the best entry, somewhat late. Objective was few pips above previous day’s low, or 120 pips. Trade worked out fine and another sell order was placed at 82.96, in case market broke through that support. But it wasn’t to be, price rebounded and no new low was made.

It seems that the Yen rally ran out of steam. For right now I view it as a consolidation within larger down trend, rather normal situation considering the preceding sell off. There may be short term buying opportunities, but sell order at 82.96 is still valid and it remains open. I’ll be returning to Yen pairs in near future. As far as AUD-JPY, no trades were taken. This pair is somewhat overextended in relation to others, so I was watching 4H chart there, eyeing breakout, not a reversal. It didn’t happen, so not trade.

As mentioned in the last post, I also closed the long standing AUD-CAD trade, which was based on daily chart set up. The level of 0.9200 was a very important support and presented a good sell opportunity. Entry was set at 0.9195 and objective at 0.8800. Trade started out a little shaky, with an adverse movement but eventually the downtrend resumed. The Aussie finally came under pressure and my target was reached for almost 400 pips. Price dropped even lower before finding some support.  That capped a very good trading week. One could only hope it was always like that….

Mike K.