The London trading week is concluding with a broad consolidation in the FX market ahead of the G-20 meeting this weekend and the holiday in the US coming on Thursday. Market participants are likely taking the opportunity to reduce positions within an environment of normal volatility. The current conditions are a stark contrast to the heavy volume and violent price action seen in the previous four trading days. Today, currencies have wandered within above-average ranges, with the most extended currency pairs seeing the largest retracements. In short, it was a week full of emotional extremes and blistering price movement that tested the wills and expended the energy of London traders.

To put the current market into perspective, the nearly 100 pip range seen today in EURJPY feels “normal”, if not tight. Under typical conditions, a big figure move is very active and usually involves the catalyst of an external event, such as economic data or unexpected rhetoric from a financial leader. Both components of the cross participated by notching roughly 60 pips spans over the course of the past several hours. As with most currency pairs, however, the net changes from yesterday’s New York closes is minimal. The exceptions are CAD, and the high-yielders, AUD and NZD. The Canadian Dollar has been crushed this week due to four factors: (1) crude oil has leveled off in the $90-95 zone, (2) aggressive comments from Canadian officials regarding the Loony’s lofty level, (3) a return to the US dollar (flight to safety) in a reversal of the Carry Trade trend and USD weakness, and (4) a one-sided market rushing for the exits.

This weekend, the G-20 meets in Cape Town, South Africa. The expectations are that Treasury Secretary Paulson Trichet will prepare another round of informal negotiations with their Chinese counterparts on the Yuan. Accordingly, European official  Juncker said that the Chinese currency is still undervalued by 20%-25%, while Paulson affirmed his strong dollar policy ahead of the summit. A statement is expected at the summit's close on Sunday evening.   

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