EUR/USD and USD/JPY under pressure as G-20 talks continue

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The currency markets had an active overnight as the Japanese Yen strengthened against the USD as traders liquidated their long USD, short JPY positions ahead of the G20 meeting in Russia today and tomorrow. Traders are wary of the comments that have been made during this week regarding the recent weakening of the JPY and are not sure if the G20 is going to officially sanction Japan for their actions regarding the currency over the last few months.

The current G20 president, Russian Finance Minister Siluanov made the comment yesterday that “G20 countries have always held the position that currency policy should be based on market conditions”. Outgoing BOJ governor Shirakawa said the BOJ has “conducted monetary policy to achieve stability in Japan’s economy”. It seems a sure bet that this issue is going to be a major agenda point of the meeting.

In other JPY related news, it seems that Prime Minister Abe is nearing a decision on Shirakawa’s successor. The two leading candidates to replace him on March 19 are both former BOJ deputy governors; Toshiro Muto and Kazumasa Iwata. A third possibility is Haruhiko Kuroda. The opposition party has stated that Muto and Kuroda would not be acceptable since both as former Ministry of Finance bureaucrats. It will be interesting to see how this plays out over the next month.

The GBP remains under pressure as comments from Bank of England policy maker Broadbent helped push the currency to a low of 1.5485. He stated that there may be more “targeted policies” alongside quantitative easing to help the banking system function better. These policies may start if problems in finance continue to hold back economic recovery. He did say he expected “some improvement” in GDP over the next year.

Elsewhere in Europe, the EUR is feeling some pressure this morning, trading to a low of 1.3310 as comments by EU officials at the G20 meeting are making traders a bit nervous. EU member Rehn is calling for “more focus on reform and less attention to fiscal and monetary stimulus”, while EU member Asmussen defended “market based rates”, without fixed targets. He also said the EUR is not seriously overvalued.

With all the speculation over the outcome of the G20 meeting and just how serious a statement will be made regarding “currency wars” and JPY devaluation, traders are keeping positions small as we head towards the weekend.

EUR direction this morning looks to be towards the downside. A test of 1.3300 would not be surprising. The support below there is at 1.3280. Resistance for the EUR is now at 1.3365 and 1.3390.

USD/JPY could see some pressure towards the 92.15 support area, especially is there is some comment later today out of Russia. Normally, statements are not made until the end of the meetings, when a joint communique is issued. But there is always the chance of a leaking comment.

USD/CAD and AUD are both trading quietly, although the USD/CAD did make a run at parity earlier today, before rebounding back towards 1.0020.

Expect the markets to be a bit jittery today, awaiting any news from the G20.

Further reading: Forex Analysis: EUR/USD Head-and-Shoulders Reversal or Simple Correction?

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Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.

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