On Saturday, the G20 group issued its closing statement following the Moscow meeting. It turned out to be a little more to the point when compared to comments from Friday. Finance ministers and central bankers pledged not to “target exchange rates for competitive purposes”, meaning that they will refrain from specific policies aimed at weakening their respective currencies. At the very least, countries should stop giving guidance, putting pressure on the markets, about “appropriate” levels of exchange rates.
While some expected Japan to come under pressure for recent easing policies, that is not the case. However, the official communiqué will make it more difficult for them to say publically at what level they would like to see the Yen. Until now, many Japanese political leaders have been talking about the USD-JPY at 95-100 range as fair. If they adhere to the guideline laid out on Saturday, we should no longer hear this kind of talk, which to many is an implied threat of market action. Still, the participants agreed that countries are free to conduct domestic easing policies as they see fit in order to stimulate their economies.
Now the important question is: how will the markets respond? On Friday, after lack of action from G20 all JPY pairs rose sharply. Will markets or traders rather, consider the final statement as “action” or simply another example of fine politics with nothing to show in return? Hard to say. We can speculate all we want, but in the end, we must wait for trading to restart after the weekend in order to find out. I will base my decisions on charts and expect above average volatility at the open, as players digest the news.
The Japanese Yen pairs have been consolidating for several days, pausing after strong rallies. Most of them show possible reversal patterns, although this fact must be confirmed first. In case of the CAD-JPY, this confirmation would come in form of bearish move through the key support at 92.00. If this happens, I want to sell it at 91.93, with objective at 90.00. Because this set up emerged on the 4H chart, the situation might take some time to play out, even though I am hoping for a swift move.
Another currency pair on my radar screen is the GBP-CHF. Here we can see a potential bullish reversal on the 1H chart. My entry is set at 1.4350, with a modest objective of 75 pips. Compared to its historical norm, the volatility in this pair is relatively low, so this trade will probably take longer to develop than in the past.
The USD-CAD is one more currency pair I think could have a decent move in coming days. It has been in a longer-term uptrend, currently stuck just under the 1.01 handle. An upside breakout could be a start to a more decisive run up, most likely in the range of 100 pips. At least that is what interests me, if the USD-CAD continues higher. In addition, opening gaps are always possible, something else to watch for. Have a great trading week!