Amid protests and riots, the G-8 and G-20 (too many of these G groups) meeting is coming to an end in Toronto. Lots of talk, little results, as always, and currencies were even officially discussed. Strange, because the summit was clearly overshadowed by Chinese decision to un-peg the Yuan from the Dollar, announced few days before. But in a communique prepared on Saturday, world leaders were set to welcome Beijing’s shift towards greater exchange rate flexibility. No longer.

It appears that a final version of G-20 official statement  will not contain this phrase. For some reason it was scrapped. At the same time Chinese president, Hu Jintao, said that wildly fluctuating currency exchange rates threaten world financial markets. In other words, what they, China have been doing in fixing the Yuan’s rate to USD, is the correct way. This whole debate will go on for some time, and is likely to result in some punitive action against Beijing, either from US or Europe. Perhaps both.

On a more interesting note, the EUR-CHF looks very interesting at this juncture. The Swiss Franc has been advancing strongly aver since the SNB stopped intervening. For this pair it has been a drop of 1000 pips in about a month. Huge move when EUR-CHF is discussed. The price in an all time low territory, but the move is taking on a parabolic shape, a free fall, and that typically does not last very long. Chances are that that a bottom could be found soon.

Most of the time when these types on price behavior happen, reversals tend to be fast and sharp. No elaborate patterns, just a snap, like a bungee cord, which makes it difficult to trade. Very often this takes place around a ” big figure’, a round number. Here it could be 1.35 or maybe even 1.30. Picking a bottom is a dangerous proposition, since at this speed one can easily be 500 pips in a hole in 2-3 days. This being a daily chart, market should form, at least,  a very strong bullish candle, not present yet. Using the SAR indicator is another option. Here possible long entry could take place when price gets above the indicator. Corrective move might easily bring 300-500 pips in a week or two. I will be tracking this on shorter time frame, where it is easier to find breakout entries. Of course, that will also limit profit potential. As always, opening might provide gaps, something to look for to start trading week early.

Mike K.