Caution Highlighted
21-10-2011
Caution entered the broad markets on Thursday and the EUR, GBP, and AUD saw tests of their collective ranges. Traders are essentially trying to position themselves before the E.U. financial aid package summit takes place this weekend. Huge questions persists about what moves the E.U. will not only take and how they will be carried out, but from a ‘micro perspective’ questions about a Greek ‘haircut’ on its debt is being widely discussed. Clarity is still in short supply and the problem is that investors may run of patience before politicians from the E.U. can actually solve the crisis. Wall Street turned in mixed results yesterday and going into today’s session it can be expected that investors will be weary of ‘going all in’ with so many possible storm clouds on the horizon. To top it all off it was announced late yesterday that Germany and France will not offer much in the way of guidelines this weekend and that in fact they will hold another round of talks this coming Wednesday. Thus the ‘can gets kicked down the block’ once again and investors will simply have to wait.
The U.S. did release data yesterday and it had rather mixed results. The weekly Unemployment Claims came in slightly worse than its expectation, Existing Home Sales figures underperformed, but the Philly Fed Manufacturing Index performed better than anticipated. Today will be relatively light with data from the States. Germany will provide the Ifo Business Climate survey and the U.K. does publish its Public Sector Net Borrowing numbers.
The story will remain the European crisis however. As much as some interesting data was published the past two days, what investors want to know is what scenarios are likely to be produced because of what was initially the Sovereign Debt crisis and has grown into an overall financial institution quagmire. The EUR, GBP, and AUD are all likely to see ranges get tested today. Yesterday’s Forex trading produced wide berths that may very well also see light today. Traders who have risk appetite and are able to take advantage of ranges while using proper risk management will have opportunities. Perhaps they will not want to hold their position over the weekend, so short term trades with outlined goals will be a trading avenue to pursue.
Gold is trading near its lower values too and is at a keen juncture as investors watch the precious metal with so many questions lingering in the shadows. Gold as of this morning is around 1625.00 USD and it will be more than interesting to see if investors attempt to push it out of its consolidated mode. The JPY lingers still in a tight range and appears that it is not likely to surprise too many traders quite yet. Talk yesterday appeared regarding the EUR/JPY pair and concern that the JPY was now too strong versus the Single Currency. It is likely the Bank of Japan is taking a ‘wait and see approach’ to the E.U.’s coming summit like everyone else.
In a word – caution - will be underscored today in the markets. The question is what will take place on bourses as investors position themselves for what could become rather rancorous markets on Monday morning. Wall Street will be an astute barometer of sentiment.
