Caution Prevails
18-11-2011
The EUR continued to trade on the weaker side of its range Thursday as E.U. bonds stayed under pressure, particularly as French debt has come under scrutiny. The GBP and AUD also traded towards lows as caution has increased. Equities declined and Wall Street is now negative for the month of November. Yesterday’s U.S. data didn’t give any gifts to sentiment as the Philly Fed Manufacturing Index came in below expectations. From the political front, rumors are circulating that France and Germany are not in agreement regarding measures on how to contain the problems its financial institutions are facing. The main debate apparently is about the future role of the ECB and a centralized ‘federal’ government for the E.U. that would help remedy oversight.
Gold continued to trade lower on Thursday and this comes under the correlation of a stronger USD. There is a bountiful amount of negative sentiment regarding the health of the broad markets. Declines were seen in riskier assets on Thursday including physical commodities and global equities. The precious metal however has a duel role, one it is considered a bastion against inflation, and two it is considered a safe haven by many in times of turbulance. Therefore its short term price which is around 1721.00 USD as of this morning looks low in comparison to its loftier heights from this summer. But the strength of the USD has always played into the price of Gold, if the Greenback is strong Gold much of the time has languished. Long term however many questions persist about the global economy and this may create a good amount of support for Gold. Although it may go down a bit more if the USD continues to gain, if chaos should really hit the E.U. bond market and the EUR has problems that cannot be fixed, investors could look to the precious metal as a avenue to preserve wealth. In the meantime, there are rumors coming from New York that one of the larger Hedge Funds which has been buying Gold for quite a while is sustaining losses and may have to continue to sell large amounts of Gold to keep its fund afloat.
Today will be very quiet regarding economic data therefore investors will be left to sift through their existing sentiment which is fragile to say the least. Also with large political and economic pronouncements likely to come this weekend, classic road signs exist to make today, Friday, dominated by short term trading. News will continue to come from Spain this weekend regarding its election, Greece regarding its debt woes and political rumblings which are spilling out onto the street, and Italy and France which are facing pressure because of bond markets which are being punished.
The JPY mounted additional gains against the USD late last night, but its move was rather minimal taking into context the amount it actually moved. The value of the JPY should be watched as investors continue to move towards the Japanese currency even in the wake of talk from the BoJ that it can and will intervene.
The broad markets will stay nervous today. Traders are likely to take short term positions. Global equities and E.U. bond yields should be watched as barometers.
