Range trading was the primary theme for the broad markets on Monday. The USD traded slightly weaker against the EUR and was rather consolidated against most of the other major currencies. The day’s trading sentiment continued to be generated from the Japanese crisis, the Middle East developments, but also the wrangling that is encompassing the European Central Bank. It is the EUR that is stirring much of the pot within the currency markets. The talk about an interest rate hike from the ECB was ramped up further yesterday when Claude Trichet discussed the inflation that Europe is grappling with. In many respects an interest rate hike of a .25% has already been digested into the markets. The question though per many investors is what the effects of such a move will have on the weaker economies such as Portugal, Spain, and others which are burdened by slow growth and large debt ratios.
The EUR has been given many staunch pronouncements from E.U. governments that have a keen interest in seeing the Single Currency stable. However the political battles that are evident continue to cause uneasiness among investors. Portugal has backed away from proposed austerity measures and its fiscal health is inching closer to a bailout that may cost anywhere from 75 to 100 million EUR. Angela Merkel’s government in Germany lost a critical local election over the weekend. While many pointed to local issues and nuclear concerns for the defeat, that other political parties took advantage of, there is also the fact that a large segment of the German population is not pleased about being Europe’s lender of last resort. There are questions still hovering over the European banking system that go unanswered regarding liquidity. There was no major economic data from Europe on Monday. Today CPI data will come from Germany along with the GfK German Consumer Climate reading, which is anticipated to have a mark of 5.9. The EUR has done remarkably well with so many dark clouds shadowing the European Union. The fact that the ECB continues to hint about an impending interest rate hike have laid a stronger foundation for the Single Currency. The EUR presents a classic case of short term versus long term trading philosophy and one that continues to foster debate regarding its future.
The USD was rather quiet on Monday. The U.S. released Pending Home Sales numbers and they came in better than expected with a result of 2.1% compared to the expected outcome of minus -0.5%. The U.S. continues to produce an interesting cauldron of economic data. Even with yesterday’s housing results, there is no doubt that the sector remains in a depressed mode. Today the CB Consumer Confidence reading is on schedule and anticipated to produce a mark of 64.0. Also the S&P/CS Composite -20 HPI is on the calendar. Tomorrow jobless data begins from the States and this will culminate with Friday’s Non Farm Employment Change numbers. Wall Street lost ground yesterday, but this came after last week’s gains. Volumes in the equity markets remain lighter than usual, which points to caution prevailing among market participants. The USD continues to trade in a rather weak mode when taken within a month long perspective. It must be asked if the USD’s current value is what the Federal Reserve has in mind as a means to generate greater exports from the States.
The GBP range traded on Monday. There was no major data from the U.K yesterday, but today the Final GDP will be published and carries and expected result of minus -0.6%. The U.K. continues to battle a large debt ratio, which has been dealt with via a tough austerity plan. The question is how much growth the U.K. will be able to achieve in the midterm. Inflation also remains a concern and the Bank of England is facing a difficult task of balancing complex problems. Investors will watch the GDP result today and any surprises could spur on volatility for the Sterling.
The JPY and AUD both traded relatively calmly on Monday. The Japanese crisis continues to roil Asian investors and the Nikkei has found downward pressure. The AUD has consolidated the past couple of trading sessions as it has taken ‘a rest’ from its record breaking pace. Commodities continue to be used as a risk barometer. Gold declined slightly on Monday along with Crude Oil. Risk appetite versus risk adverse trading remains a tough path to judge. Many international events continue to linger.
Written by bforex.com
