The summit in Korea came to an end and the finance ministers of G-20 countries came to some interesting conclusions. In a turn around from just few days ago, the meeting’s communique withdrew support for financial stimulus packages that many countries introduced to jump start their economies. It stated that expansionary policy is no longer sustainable. Moreover, it is not even effective as a tool to foster growth. In other words, the G-20 club admitted to a failure of their actions over last 2 years or so.

Representatives agreed that recent market events force them to rethink priorities. Currently, these are sovereign debt fears among investors, hence a need for consolidation and deficit reduction measures by every country. Even if this would undermine the recovery in the near term. Of course, each country is left to own devises on how to go about cutting public debt. All this seems to be an effort to reassure markets and calm fears, rather than any real, coordinated policy. No agreement was reached on reforms to the financial system and the proposal for a global levy on banks was taken of the table.

Obviously, it is not realistic to assume that few handshakes and a joint statement will somehow heal the budgetary problems. Neither overnight, nor next month. But now, that a “united stand” was demonstrated and everybody is in an agreement on priorities, political pressure can be applied to rating agencies to be less willing to downgrade sovereign debt. They have been under fire for some time already and now can be squeezed a little more. Not that it will solve problems, but will make everything look good. Well, better.

There was a question about a stop for the trade in CAD-JPY from last post.  It is easier to see on shorter term chart. While I didn’t actually place a firm stop order, I was looking at the high of hourly candle, during which the trade was triggered. It was a little higher than the hour before, that’s why the choice. So, that’s where my intended stop was.

The Yen pairs will be watched closely. Intermediate term charts seem to building large reversal patterns. AUD-JPY came to almost 75.00, before rebounding just before closing. In principle . I’d like to selling it again, just not right after the market opens. If the prices of JPY crosses continue down, the Sunday evening set up could be used. Other than that, gaps should provide some clues and once that happens, focus will go hourly charts, looking for general market behavior as indicated above.

Long term chart of GBP-CHF could be indicating a large move later this year. The major resistance is at about 1.7100 or so and it has been tested few times. If it gives way, this pair might move as much as a 100o pips. None of this is imminent, given the long term time frame, just something to keep in mind. For now, let’s see how the currencies open and take from there.

Mike K.