Tim and Ben’s Weekend in Korea

• Posted by Greg Harmon
• on October 23rd, 2010

The G-20 meeting is currently taking place in Korea.  With such an elite group of Central Bankers and Finance Ministers gathered together you would expect a lot out of this meeting.  A lot of pictures, a lot of handshaking, a lot of rhetoric.  Seriously, this group has never done anything meaningful, at least not at the meeting itself.  And how could they with so many people involved?  In fact it has gotten to the point that even the mainstream media start their coverage by saying that they do not expect anything out of it.  But what does the market say?

The two star attractions the US and China are represented by the their currency ETF’s above. Notice that as the meeting approached the dollar sell off halted and reversed. The Chinese yuan ETF did just the opposite, reversing its up trend. Does this have anything to do with the meeting?  It could be market participants taking off some of their risk positions ‘just in case’.  It could be central bankers intervening to make the market support their arguments. It could be a view change that the discussions will produce a coordinated effort to support macro economic growth globally instead of continuing a currency devaluation war.

What does the rest of the world think?

The charts above of the euro and yen ETF’s tell me that they are sitting on the sidelines waiting to see the result of the main event. Both have paused for the last 2 weeks. Clearly the Japanese and European’s, at least as exhibited in their currencies, are gonna watch and see what the big boys with the loud mouths decide. Gold as a proxy for everyone else is in the thick of it. Makes sense as all of our QE money is going to the rest of the world (This is actually the secret reason for having this meeting in Korea so that we can see what they are using it for).

So what is the reason for the the short reversal and what will happen after the meeting ends? The technicals on the US Dollar Index show there is some room for it to continue to improve and that it bounced at strong support level. My bet is that the technicals prevail over any rhetoric and that after hitting resistance over the next week or so the trends resume. What do you think?

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