Central Banks Holding Sway

USD

Tuesday in many respects was a replay of the previous session as the USD continued to remain under pressure against the EUR and GBP. The JPY in the meantime also continued its steady pace and stayed at the stronger side of its trend. The ISM Non Manufacturing PMI was released from the States and it came in better than expected with an outcome of 53.3, beating the estimate of 52.1. However, this did little to stop the constant rhetoric from various officials, this time Charles Evans, the Chicago Fed President, was quoted as saying the Federal Reserve must continue to try and stimulate the American economy with ‘easing’. Today the jobless parade data begins in earnest with the ADP Non Farm Employment Change statistics and it is expecting an improvement compared to the previous report.

The USD finds itself get knocked around within winds that are being generated amidst a storm of debate among senior public officials and well known international investors such as Warren Buffet and George Soros as they all give their various opinions and interpretations regarding the predicament of the global economy. It has become a debate between those who believe stimulus is needed through spending (including quantitative easing) and those who believe governments ought to tighten their collective belts and spend less. The U.S. continues to show clear signs of struggling and this week’s jobless numbers will be put under the microscope in order to judge the state of the economy again. However, it is widely believed the jobless figures will be less than inspiring and investors are concerned about this and the knock on effects of consumer spending. Wall Street it should be pointed out actually turned in a positive day yesterday, showing that divergence in the broad markets continues and that volatility is likely not to go away anytime soon.

EUR

The EUR gained against the USD again and it did so even as the broad Retail Sales for the continent turned in a result of minus -0.4%, falling short of the anticipated gain of 0.2%. Today the Final GDP numbers will come from Europe and are estimated to be 1.0%. German Factory Orders are also on the calendar and carry a forecasted gain of 0.9%. The anticipated numbers actually indicate rather lackluster growth from Europe, but for the moment in regards to the EUR this is having little effect. The Single Currency continues to trade under the onus of a strong dollar centric venue and until there is a paradigm shift in sentiment the EUR may continue to foster backing. The question is - how long can the EUR continue to strengthen even as it has severe concerns lurking regarding austerity, and how will this influence Europe’s growth prospects? Short term versus long term philosophies must be carefully gauged.

GBP

The GBP continued its momentum upwards against the USD on Tuesday following in the footsteps of many other currencies. While the Services PMI report did show a better than expected mark with an outcome of 52.8, beating the estimated reading of 51.1 questions persist for the U.K. economy. Today will be a quiet day for releases, but tomorrow Manufacturing Production will be released along with the Bank of England’s MPC meeting results. Central Banks around the globe have become more aggressive in the past month with rhetoric as they battle evidence that economies internationally are struggling more than anticipated. Thus, it will be quite interesting to see how the BoE falls into line tomorrow. With a dollar centric mode, jobless data coming from the States these next few days, and the upcoming BoE meeting, traders should expect swift movement from the Sterling.

JPY & AUD

Both the JPY and AUD continue to create fireworks as they trade near highs. The JPY has stubbornly clung to the highest parts of its long standing range (discounting the temporary move that the BoJ caused with their intervention a couple of weeks ago). The intervention has proven a short term nuisance for investors who have apparently shrugged off another attempt by the Japanese government to affect the JPY. The question is how the Bank of Japan will act now that the currency once again is nearing what are considered dangerous points for its export community. The AUD as pointed out yesterday did lose some value short term upon the Australian Central Bank’s decision not to change its interest rate, but the Gold price could not be discounted for too long. The precious metal is at record prices and its affect on the AUD continues to make the Australian currency strong.