Currencies Respond to G7 Meeting

Interesting development in Washington today and for once it was not on the account of the congress or the president. It came after the G7 meeting. The Yen became considerably stronger, pulling all its crosses lower, 100+ pips in a matter of minutes. Apparently, the G7 officials are “concerned about excessive in currencies”, which is a thinly veiled rebuke towards Japan. Typically, these meetings get plenty of attention but little response from the markets, because not much in terms of solid action comes from them. Today was different.

Before we get too excited, however, we should note that once again the Group of 7 did not really deliver anything. After all, no agreement of consequence emerged today. Expectations, such as they are, shifted to the much bigger summit of G20 in Moscow later in the week. We shall see what happens there. Meanwhile, today’s increased volatility suggests that the Japanese Yen is very susceptible to a rally on any news criticizing global easing policies. Markets are waiting for a catalyst that would swing the sentiment and reverse the Yen’s recent slide.

Time to pick up where I left off before my departure last week. While my trading was not very active during that time, I was tracking some things, as mentioned in the previous post. Among these situations was the NZD-JPY, looking for another short. The set up developed in mid-week and produced 60 pips, exactly as in the previous trade.

Another currency pair on my radar screen was the EUR-CAD. I expected another leg down on its hourly chart with entry at 1.3490. This trade took some patience, as the price largely drifted sideways. Eventually, though, it made a sharp move down, hitting my target at 1.3420. Good thing that I was monitoring the markets on part time basis, because otherwise I would have closed it earlier.

I have been following the Yen pairs, trying to short them for a long time, using mostly the EUR-JPY. While most of the trades worked out just fine, my judgment about a more substantial correction has been wrong – the bull market persists. However, I am sticking with format, selling the JPY crosses. Their 4H charts show possible weakness, perhaps a sign of a larger pullback. In case of the NZD-JPY, (most others are almost identical), I have a dual approach, depending on what happens next. If the price falls under the latest low of 76.97, my plan is to sell it, with objective of 150-200 pips. On the other hand, if the NZD-JPY makes a new high here, it will most likely form a divergence with the MACD. In this case, the short is still appropriate, only with a smaller target of 100-150 pips. The problem is that the divergence must form quickly, within 1-2 days. Otherwise, it will lose its potency, with significantly lower probability of success.

Mike K.