The French budget minister, Francois Baroin, is worried about that country’s credit rating. For now France enjoys the highest possible rating, making it possible for the country to borrow money cheaply. The minister warned that it shouldn’t be taken for granted. If some budget cuts are not made soon, it is unreasonable to expect for the rating to remain sterling. Currently French deficit is about 8 percent of gross domestic product this year, but the cabinet aims to bring it down to within the European Union’s 3 percent limit by 2013. There is also talk about a constitutional amendment to set binding budget deficit limits.

It seems that just about every country in EU is above the limits. Even Germany’s budget deficit is expected to exceed five percent of GDP in 2010, modest by current EU standards but  also over the limits. So, nobody is a saint there. The government is considering raising taxes and cutting some spending in order to get the deficit under the 3% limit. It seems that the proposed sanctions for rule breakers would have to imposed on just about every EU member. Who would levy them, then? And how enforceable any of these sanctions would be? It will be interesting to watch that process, if it is ever established.

Few days ago, in the post SNB to blame, I discussed a possible trade in GBP-AUD. Idea was to buy this pair if certain conditions were met. One of them was to go long, if price made a new high. This  hasn’t happened yet. The alternative was to buy on a pullback to 50% or 62% FIB retracement of last major swing on intermediate term chart. And that’s where the price is right now. Time to start looking for entry.

It would be nice to see the price under 1.7000, at which point a strong bulish reversal pattern would be desireable. Over the weekend a new twist emerged to all Pound pairs. The Chief Treasury Secretary, David Laws, stepped down from his post, with the resignation effective immediately. It will be interesting to see how markets respond to this, if they do at all. First few hours after the open should determine if it is of importance. The other potential trade from the same post, CAD-CHF, is now cancelled.

The Yen has gotten weaker recently, with all of the crosses making a nice run up. It is possible that the bullish move is over, but not confirmed yet.  Since Friday was a relatively narrow range day, a breakout above/below the high/low, should indicate what the market is going to do next. In case of CAD-JPY, I don’t want to see an immediate down move after the open and if that happens, will have to wait. Other than that, gaps are always possible and could provide some opportunities. With the Memorial Day in US, late Monday should be very quiet.

Mike K.