Yesterday and early today may well go down as the sounding bell for the newest wave of volatility in the broad markets. The USD lost swiftly to the EUR in trading yesterday, but divergence was evident as Wall Street struggled. Retail Sales figures were released yesterday and did better than expectations, but inventory numbers came in worse than anticipated. Today the Empire State Manufacturing Index and Industrial Production reports will be published from the States. Risk sentiment was put to the test on all fronts yesterday.
Helping to create a rather complex day were the poor outcomes from Europe as the German ZEW Economic Sentiment reading came in with a disappointing 4.4 mark compared to the forecast of 14.9. And the Industrial Production numbers were flat at 0.0%, missing the estimated gain of 0.2%. These numbers are interesting when compared to the fact that the EUR gained well against the greenback as Tuesday proceeded. Today the E.U. will release CPI data. However, the crux of trading in the EUR appears to be based more on short term sentiment and dynamics that are difficult to determine. With rumors aplenty, one aspect that could be in the midst, is the belief that the U.S. may be considering another round of quantitative easing – but this has to be weighed against many shadows that exist in the European Union too. The IMF for example yesterday pointed out that some nations in the E.U. are operating their debt ratios under precarious circumstances.
The JPY proved a firestorm last night and in early trading today as the Japanese currency went to new highs, but had its trading punctured by an announced intervention by the Bank of Japan, which weakened the JPY dramatically. Now the question being asked is if the BoJ will be able to sustain an intervention long term in order to ‘protect’ the JPY from getting too strong. The intervention had been rumored for nearly two months, and as the JPY reached its high water mark last night, the BoJ decided to act. Now it will be for investors to contemplate what will happen and it will become a classic chess game within the currency markets pitting a central bank against natural market and financial dynamics.
The GBP gained also against the USD in late trading on Tuesday. CPI data was released yesterday and showed once again that inflation is problematic in the U.K., while it struggles to achieve growth. BoE Governor Mervyn King is scheduled to speak today and is likely to offer his viewpoints on the rather nervous subject of a possible double dip recession occurring – or very lackluster growth – in the wake of rising prices.
The AUD traded near highs on Tuesday as Gold prices continued to reach for highs also. The markets including the AUD, gold, and other currencies will all face a fierce dynamic today and in the coming days. Global equity markets even though they have been producing gains continue to leave many investors unconvinced. The intervention by the BoJ earlier today will be put to the test in the coming days and weeks and investors internationally will speculate about its implications and their own government’s policies. Bottom line – expect swift markets worldwide.
Written by bforex.com
