Over the weekend the G20 summit took place in Canada and despite each country hanging on to their own path for cutting budget deficits G20 leaders came to an agreement to half fiscal deficits by 2013 and to ensure that public debt as a percentage of GDP stabilises or declines by 2016.

These set targets mark a move towards a more specific solution as opposed to previous generic statements - however, one must also note that they are in line with what many of the countries had already committed to.

G20 leaders acknowledged that synchronised debt measures posed the risk of endangering short term economic recovery, but highlighted the necessity to restore confidence and longer term stability. It was emphasised that austerity plans should be differentiated to national levels and focused as much as possible on measures to boost growth.

It was pointed out that Japan's situation was different in nature and the mentioned specific debt reduction targets would be impossible - the Japanese government committed to eliminating the fiscal deficit by 2020, which was welcomed and accepted. G20 countries with greater deficits agreed to boost savings while the other export oriented countries agreed to foster more domestic growth to reduce their reliance on exports.

With regard to bank regulation, G20 leaders agreed to more stringent capital adequacy rules, but left quite an amount of flexibility by saying that new regulation will be phased in gradually and that nations would be left free to implement full implementation until the end of 2012. As expected no consensus was reached over the bank levy.

The IMF came out publicly as unsatisfied with the G20 commitment, saying that there needed to be more coordinated effort as it could come at the risk of millions of jobs. It also warned of delaying austerity measures. The fact that the bank levy was not accepted was also another setback for the IMF that had come up with proposal itself - even though some countries will go ahead alone with this proposal.

Following the G20 summit Reuters reported that another international institution, the Bank of International Settlements (BIS), a bank for central banks, was warning against keeping crisis support too long. In a report published last Monday, the BIS was quoted as saying that central banks should not wait too long to slash budget deficits decisively and it added that the raising of borrowing costs should not be postponed too long either.

Even though the BIS acknowledged the frail economic recovery, general manager Jaime Caruana went on to say that a more resilient financial system outweighed any short term growth losses and that banks are getting too used to the state's support lifeline.

In support of the fact that more was expected from the G20 summit, various analysts commented that the outcome of the G20 summit did not cause too much change in market sentiment and that the eurozone fiscal problems remained the main concern, even though concerns over US economic recovery seems to be getting some of the limelight as well. In fact the US dollar was experiencing a reduced support early this week due to some trimming of previously taken long positions, while a broad view of the euro reveals it managed to hold on to its previous gains quite well.

The inability to consolidate positive economic data, due to mixed data coming out from the United States is shedding some concerns about the US economic recovery, putting it relatively closer to eurozone debt concerns. This probably resulted in reduced support for the US dollar combined with a stable support for the euro.

This discounting of the US dollar "safe haven" perhaps is even more evident when seen against the Swiss franc. A closer look at the USD/CHF shows a strengthening of the CHF against the US dollar, in the region of 5.90 per cent (taken from May 28 to June 28 {before close} of the current year) - and the majority of that decline comes from around mid June.

The relative stabilisation (as opposed to deteriorating) of eurozone debt problems has led to a weakening of the US dollar when compared to its major counterparts. When paired against the Swiss franc the SNB's decision for no intervention has also contributed to the weakening of the US dollar. Despite short term volatility this phenomenon is expected to persist in the longer term as markets start to concern themselves on the debt and deficits of the US economy.

Meanwhile aside of the G20 summit and related to European debt, early this week Greece was committing to an impressive pension reform, which would postpone the retirement age and sharply reduce pensions. Up until early this week the reform still had to be passed through Parliament.

Upcoming FX Key events

Today: Euro Zone PMI Manufacturing and US ISM Manufacturing.

Tomorrow: Eurozone Unemployment Rate and US Change in Non Farm Payrolls and US Unemployment Rate.

FX Technical Key points

EUR/USD is bearish, target 1.1650, key reversal point 1.2450.
USD/JPY is bullish, target 98, key reversal point 85.
GBP/USD is bearish, target 1.4000, key reversal point 1.5500.
USD/CHF is bullish, target 1.2000, key reversal point 1.0500.
AUD/USD is bearish, target 0.7800, key reversal point 0.9100.
NZD/USD is bearish, target 0.6200, key reversal point 0.7250.

Mr Muscat is senior trader at RTFX Ltd.

RTFX Ltd ("RTFX") is licensed to conduct investment services business by the Malta Financial Services Authority. This information does not constitute an offer or solicitation and is provided for information purposes only.

This information shall not be deemed to constitute advice and should not be relied on as such to enter into a transaction or for any investment decision. Any opinions expressed in this document represent the views of RTFX at the time of preparation.

They are thus subject to change without notice. RTFX believes that the information contained herein is accurate as at the date of publication. However, no warranty of accuracy is given by RTFX and no liability in respect of any errors or omissions, including any third party liability, are accepted by RTFX or any director, officer or employees.

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