Morning Currency Wrap for Monday October 25, 2010

G20 - Much To Do About Nothing. G20 finance ministers pledged to avoid competitive currency devaluation - what does this mean? I'm not sure but I will guess that they couldn't agree so hence the pledge. As long as the U.S., UK, and Japan embark on QE then emerging countries will likely respond with currency and capital controls. In other words, the status quo remains. One thing that they did agree on was to give emerging nations a bigger voice in the IMF, recognizing the quickening shift in economic power away from the West to the East. Back to the market, with no G20 currency agreement the risk on trade is back on. The Euro regained the 1.40 handle and the Yen is fast approaching the 80 Yen level. The battle of 80 Yen between the speculators and the Bank of Japan looks to happen this week as chances of Japanese Yen-selling intervention increases as we approach 80 and tests its record low of 79.75 yen. News that Toshiba Corp. will prepare ways to withstand an exchange rate of 70 Yen to the USD, including halting unprofitable operations will give the speculators a shot in the arm. Elsewhere,  the SEK was up before a meeting of Sweden’s central bank, which should result in the main rate’s increase to 1% from 0.75%. Meanwhile in Australia, the AUD moved closer to parity with the USD as producer prices index advanced 1.3% in the third quarter from the prior three months, when it gained 0.3%, the Bureau of Statistics said in Sydney. The data caused the odds that the central bank will raise interest rates next month to rise to 53% from 38% last week. In the UK, the GBP looks to be in deeper trouble than the USD as the decline in the GBP suggests investors are losing confidence in Prime Minister David Cameron’s ability to restore growth while promising the deepest spending reductions in British history to shrink the biggest deficit in the G20. The 81 billion pounds ($128 billion) of cuts through 2015 will force Bank of England Governor Mervyn King to print cash by way of QE. This morning, analysts notes from Goldman Sachs suggest that the Fed's QE program could be anywhere between $2 to $4 trillion. In Canada, the CAD moved higher with the risk trade as commodity prices and global equity markets rallied.