Calm Before Another Storm?

USD

The USD continued to trade in range on Friday as the broad markets continued to take a cautious approach. The U.S. released Preliminary Consumer Sentiment results from the University of Michigan before going into the weekend and a disappointing mark of 66.6 was the outcome compared to the estimate of 70.2.  Wall Street reacted to this poor statistic with relative calm as it once again turned in slight gains continuing its positive run since September essentially began. The U.S. will be light on data today, but that will rapidly change tomorrow as the FOMC Statement follows up Building Permits and Housing Starts numbers. Investors will get yet another rapid fire set of impetus in which to gauge their sentiment. The economic data from the U.S. has been mixed at best and last week’s lackluster Manufacturing Indexes coupled with the bad Consumer Sentiment reading will not warm many long term outlooks.

The Fed’s statement tomorrow is certain to speak about the U.S. economy and the manner in which it is struggling. It will be up to the Fed to create ‘polite’ words in order to maintain an air of optimism regarding the economy. The USD lost ground last week possibly due to the prevailing thought that the U.S. government may be tempted to resort to a new round of stimulus and that the Federal Reserve may be pushed into further quantitative easing. Election season is now in full swing in the U.S. as politicians deliver recriminations per their political leanings as they try to save their respective jobs or gain a new one. The American public in recent polls has shown they are a disgruntled bunch and are very concerned about the future of the economy. The housing numbers that will be published this week will be yet another chance to see if any improvements are underway. However, recent data suggests that investors should be geared for rather tough results and that risk sentiment will remain on a razor’s edge.

EUR

The EUR held onto its gains as Friday came to a close capping off a ‘good’ week versus the USD. However, not all is wine and roses for the Single Currency and its gains must be inspected carefully as to why they are occurring. Data from the E.U. continues to offer a mixed bag much like its international counterparts and questions regarding its financial health have not been completely answered. Perhaps some will disagree that the EUR has gained while risk appetite has shown a slight increase and talk of quantitative easing in the U.S. has come into play, but if asked to point to other reasons – besides a ‘natural’ fair value – some traders may be hard pressed to explain the Single Currency’s recent stature. Ireland and Greece continue to make unwelcome news as they are confronted by questions regarding their debt ratios and financial capabilities. Europe will be very light with data until Wednesday when the broad Industrial New Orders statistics are published. The EUR has enjoyed relative sunshine the past week, but traders should be on the lookout for another possible storm.

GBP

Like the EUR the Sterling was able to stay on a stable path Friday and keeps its gains made previously. There were no major economic publications before going into the weekend and today only the Mortgage Approvals should be a factor. Tomorrow the Public Sector Net Borrowing statistics will be released and on Wednesday the MPC Meeting Minutes will be brought forth from the previous BoE monetary policy session, also the Inflation Hearings are tentatively listed as a possibility. The crux of GBP trading will likely stay on a dollar centric avenue that will be shadowed by concerns regarding the U.K.’s own growth expectations versus their austerity measures.

JPY & AUD

Consolidated trading met the JPY and AUD on Friday as both currencies experienced a relatively calm day after a week of volatile trading on both fronts. The JPY seems to have found a perch of stability after the BoJ intervention and now the question surrounding it is when its next battle will unfold as market forces – such as Japanese treasuries and Asian bourses find themselves tested. The AUD has mimicked the price of Gold in recent trading as the precious metal has gone to a high and then turned neutral. The AUD is in a range that has many focused on it and its price action may find swift trading again.