Be on your toes for G7

OK. Quick market summary of today’s movers: USD/CHF managed to rally to a nearly 2-month high as it went past 1.2600 to hit 1.2621- SMA resistance- before declining on profit-taking for the longs. The US inflation data fell in line with market expectations, with core consumer prices increased by 0.2% in August, while overall consumer prices climbed by 0.2%, also in line with expectations. Let’s look forward into the future now. With gas prices…..

retreating recently, we may see a drop in upcoming CPI releases, and this may impact negatively on interest rate outlook for the US. Remember that the US dollar feeds on the possibility of more rate hikes for its strength. Why on earth are people buying USD? I’ll tell you.

Almost every one is now thinking that the G7 statement won’t contain very detailed comments about currency volatility and flexibility, and that it will be a fairly generalized statement. Meaning? If there are strong comments about how the Chinese yuan should be revalued, USD would go down. If not, then USD would be spared. The market is discounting the latter right now.

After a week of putting up a brave face against the USD, EUR finally buckled and staged the biggest decline and move of the week. As EUR/USD and USD/CHF are close to crossing over, there would be some fierce fighting over there, and their fates will depend on the G7 meeting. Today, hawkish comments continued to flow from the Eurozone, with European Central Bank Governing Council Member Paramo indicating that the central bank remains "strongly vigilant" and that ECB rates are still accommodative.

What will or won’t the G7 statement say? Will it be benign and display no harsh words about specific exchange rates? Or will it be the opposite? Watch out for my blog update on G7.

By the way, from now on, I’ll try posting my daily forex commentary between 1300 and 1500 GMT (9 pm Singapore time) as this will better enable traders to prepare for the day ahead of them.

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