Mostly due to the President’s Day in the USA, Monday trading was very subdued. With financial markets close in America, and few economic announcements elsewhere, currencies showed little volatility, staying roughly within ranges established on Friday. The Japanese Yen was one of the exceptions, weakening to some degree, although moves in its crosses were far from decisive, only a meek continuation of earlier trends. This behavior was not at all revealing about future moves and not indicative of exactly how markets interpreted the final G20 statement.
While on this subject, we should point out that central bankers did not wait long to possibly violate the spirit of the agreement. Martin Weale, one of the policy makers in the Bank of England, wasted no time saying that Pound’s exchange rate was too high. While he did not specify what is the “preferred” level for the GBP, his comments leave the door open for everybody else to criticize strength of their respective domestic currencies. Before long, the so-called “agreement” from Saturday will be forgotten and central banks will openly start influencing Forex rates with loud rhetoric.
The EUR-USD is a good example of what happened today, or more to the point, how little happened. It had very quiet action, well inside the range from Friday, which itself was already tight, at least when compared to prior days. This is not likely to last much longer and I expect more directional movement soon. The premise here is very simple – a straddle just outside recent extremes, with the objective of 75-80 pips after the breakout develops. Hopefully, within next 1-3 days.
Mike K.