One day after good gains on Wall Street investors proved that not all is confident in the world of finance. Reversals were strong on Wednesday as the major indexes in the U.S. dived. Part of the reason for this was due to the lack of confidence that continues to come from Europe regarding its debt crisis. Greece took another step towards the edge as political problems and negotiations regarding a bailout remained complicated. The EUR lost swift ground to the USD. As much as some analysts have said that a restructuring of debt is already priced into the EUR, this must be called into question, because it is doubtful that all of the possible knock on effects are known at this juncture. Therefore the current value of the EUR may still prove to be optimistic when judged long term. The problems that may come about for French banks, German banks, and the possibility that countries such as Portugal and Ireland will then be able to save face and have their own restructuring all must be taken into consideration.
The confidence game that has been being played by the ECB, IMF, and European government officials unraveled just a hair on Wednesday and allowed investors yet another glimpse into the looking glass. The fact that the U.S. economy and the policy by the Federal Reserve have been ‘anti-USD’ may be the only thing ‘saving’ the EUR from a rapid decline. European officials will continue to meet into this weekend in order to push forward a bailout that will provide a bandage for the Greek debt wound. The question is if a bandage can help heal a broken leg? There was little in the way of economic data from Europe yesterday, today some inflation numbers will be presented, but the crux of sentiment will continue to be generated via the debt crisis. The question short term for traders is how the EUR will react to the avalanche of news developing around its core. Today and tomorrow are likely to prove volatile for the Single Currency.
The U.S. produced another poor Empire State Manufacturing Index reading on Wednesday essentially keeping it negative wave of data on a steady path. Industrial Production numbers also proved disappointing. Wall Street reacted to this with swift downward movement. Also factoring into the move via the equities must be the consideration that the previous day produced strong gains in the face of many questions. Wednesday’s poor day on Wall Street may have proven that Tuesday’s session was more about an attempt at value investing. The USD gained quickly on the notion that investors were confronted with concerns about the European debt crisis and growing concern about weakness seeping into the American economy. Safe haven trading was apparent in the Forex and Commodity markets. Gold gained in trading and as of this writing is around 1526.00 USD. However, Crude Oil continued to show that a genuine amount of concern is starting to grip the physical resources as it lost value. Other commodities such as grains also showed signs of struggling. Weekly Unemployment Claims and Building Permits figures will come from the U.S. today and while they are not going to be the absolute focus for American investors, it should be noted that any negative surprises could be yet another spur in the side of sentiment.
The GBP fell along with the EUR yesterday. Employment figures from the U.K. came in weaker than anticipated. Retail Sales data will be released today and the estimate is minus -0.5%. The U.K. economy has shown real signs of distress and if the Retail Sales numbers disappoint investors the Sterling may find itself with yet another reason for negative sentiment. The GBP however continues to be shadowed by a EUR centric storm.
The AUD lost ground to the USD on Wednesday even as Gold climbed in value. The problem for the AUD yesterday may have had more to do with jitters that swept through the broad markets regarding the outlook for the global economy. The JPY continued to lose some value to the USD, but the JPY remains within the stronger part of its range, and traders looking to profit from its value should be attentive to short term movements. The JPY is historically a safe haven currency, thus its trading the next two days will prove interesting in the wake of nervous markets.
Written by bforex.com
