Interest rates remain a focal point for investors going into to Wednesday’s trading. The USD gained on the EUR and GBP yesterday lifting the Greenback back into a bit of light. Economic data has been very light thus far this week and a vast amount of sentiment has been driven by geo-political events. The price of Crude Oil remains above 100.00 USD. Many analysts suggest that the current prices of energy are not catastrophic, but should Crude Oil begin to touch 120.00 USD or more – than all bets are off on the possibility of recovery and recession would likely ensue. Under this storm the Central Banks are being watched intensely with the ECB at the fore because of Claude Trichet’s hawkish opinions expressed last week during the European Central Bank’s monetary policy press conference. The EUR has been strong for over two months and has trended up in value against the USD. Yesterday’s losses by the EUR must be viewed with a sharp eye.
Trade Balance numbers will come from the U.K. today, German Industrial Production data will be released, and the U.S. will bring forth Crude Oil Inventories which are suddenly a real concern. Tomorrow the Bank of England will present their monetary policy edict. Very few investors are expecting a rate hike tomorrow by the BoE considering that the U.K. has still shown very lackluster GDP numbers. And this is where the argument really ensues, because the E.U. too is still locked into lackluster growth of its own and there is plenty of reason to believe that an interest rate hike by the ECB would have a negative effect on many nations. While many traders have been wagering that the ECB will hike their interest rates and have helped the EUR gain in value, yesterday’s outcomes should serve as a warning that not all the answers are complete. Europe still has many unsolved financial burdens in its way and the hurdles will not be easily jumped. For evidence of this, Portugal Sovereign Debt should be inspected as their yields become more expensive for their government.
Gold has come off of its record highs but it has formed a consolidated base the past two sessions, which signals that investors are waiting for the ‘next shoe to drop’. The situation in Libya and other nations remains unclear and demonstrations are continuing in many places. Inflation which has sparked rises in food prices has certainly helped spur on anger, and look term resentments against the ruling ‘elite’ has found a voice. The question investors are asking is what are the chances of a domino like effect continuing to take place, rumors abound that Saudi Arabia will see demonstrations this coming Friday.
It appears that the coming months are going to be very active and filled with genuine risk events both politically and economically for a number of reasons. Central Banks for the first time in two years must be watched closely as they weigh changes to their collective policies. The Federal Reserve from the U.S. is still undertaking quantitative easing and even as Crude Oil prices continue to climb there has been little talk of any changes in policy. In fact talk remains that the Fed is still considering a QE3 package sometime in the early summer. Thus a complex web of problems must be dealt with by traders as they try to find solutions to short term sentiment compared to long term outlooks.
The JPY and AUD also remain quite interesting under this umbrella as storms swirl above. The JPY has traded to the stronger side of its range the past week, but did lose a bit of ground to the USD yesterday. The AUD also lost some value on Tuesday.
A key barometer continues to be the price of Crude Oil and Gold going into today’s trading sessions. With so many questions prevalent the possibility for risk adverse trading to emerge remains strong and traders must be ready for momentum shifts as they tests daily ranges and manage their expectations.
Written by bforex.com
