Since my last post, the G20 moved a step further by allocating funds for developing countries. However a core issue demanded by China and some other members was not discussed -- namely a Global Reserve Currency. We have to wait until the next G20 meeting to find out what will happen in relation to that. Some experts believe that the USD, the euro or for that matter any other currency by itself is not sufficient to create confidence among all members.

Nineteen major US banks went through the stress tests and it seems that only $75 billion has to be raised in order to protect these banks. President Obama has created some confidence by taking this step.

Some of the recent macroeconomic data, including the non-farm payroll data -- which showed some slowing in the pace of job losses -- indecates that the recession is probably bottoming out. At least that is what the data coming out in the last few days suggests. However, though I have no data to support otherwise, reading the markets and instinctively speaking, I feel a lot more is yet to come.

In other words, I don’t see a bottom yet, and even if a bottom is in place, I expect the market will test the bottom once again.

Currently among currencies the best pairs offering a trade in my opinion are USD/JPY and the cross of GBP/YEN.

GBP/USD: I expect the GBP to start dropping again. I would expect 1.6280 as the maximum on the top side.

USD/CHF: I expect the USD/CHF to be a good buy at 1.790, though one could risk buying a bit earlier at current level of 1.0820-1.0880

EUR/USD: It is difficult to say right now how this will play out, but it could come down from the current level of 1.3910-1.4020

USD/JPY: The yen has failed to cross 105. This is the best trade for now. A sell anywhere between 95.50 and 96.50 for a target of 80 yen is a good trade.

GOLD: This is also difficult to analyze, but I would expect a downward move to around the 770 level.

OIL: Oil has been range-bound between $50 and $60 per barrel, but it has now crossed $60 and hence it is likely the range could shift higher.

USD/PLN: I expect it to move to zł.3.80-4.00

DJIA: The Dow Jones is toppish and a failure to go higher from current levels could bring it down to its previous lows again.

There is a need for a new financial architecture that includes new regulatory framework with more representation from newer economies in addition to the G-7. This would make the body more representative and put forward the realities of the new economics.

Not much was expected out of the G20 summit other than a beginning for what some have termed as Bretton Woods II. Most leaders stressed the fact that the financial crisis, which started in the USA:

• has now gone global
• choked normal credit channels
• triggered a worldwide collapse in stock markets
• started to affect the real economy
• has affected most industrialized countries, which have gone or are going into recession with no sign or early recovery
• has started to show signs of the Great Depression

Since the crisis is global a global response is needed, and the approach should be divided into immediate response and medium term objectives. The immediate response is concerned with injecting liquidity into the financial system and recapitalizing banks, and other systematically important institutions. The medium term response is of reforming the global financial structure to prevent similar crises in future.

All measures should be taken at the national level to complement any coordinated international stimulus. The international community needs to consider special initiatives to counter the shrinkage of capital flows to developing countries that is almost certain to occur over the next two years.

 

(Salient features of the speech made by Indian Prime Minister ManMohan Singh at the G20)

Disclaimer: Any opinions, news, research, analyses, prices, or other information provided by the author are provided as general market commentary, and do not constitute investment advice. Neither IFB nor the author is liable for any loss or damages, including without limitation, any loss of profit which may arise directly or indirectly from use of or reliance on such information. Investors are advised to consult their broker before making a decision on buying or selling a particular security, product or currency pair. These articles are opinions and should be treated as such.