Challenges Ahead

A second straight cautious day of trading ensued on Friday as investors continued to sit on the fence and take a wait and see approach to the markets. The United States released their critical jobless numbers and they proved rather debatable. Wall Street responded with a mixed day at best. Forex saw the EUR, GBP, and AUD inch lower as traders went into the weekend. Gold finds itself trading near short term highs as does Crude Oil. The broad markets are essentially proving to be a hornet’s nest. While the Official Unemployment Rate improved, the Non Farm Employment Change data missed its estimate. The White House was quick to point to the improving Unemployment Rate as a victory, but skeptics were quick to say that the numbers actually fell because the unemployed have stopped filling out paperwork as their benefits run out.

Economic data will be aplenty this week. Europe kicks off the show today with a barrage of numbers including Retail Sales, the Sentix Investor Confidence reading, and Final Services PMI numbers. The U.K. will release Services PMI marks. And the States will see the ISM Non Manufacturing PMI and Factory Orders results. Towards the end of this week the ECB and BoE will offer their monetary policy dictates. Thus investors will get a strong dose of reality to investigate the economic prospects of the major economies. And questions have only become tougher as to how Europe and the States will handle their respective challenges.

The European debt saga will continue to be a focus today as Germany and France hold another in a long line of summits to discuss the ongoing financial crisis. Optimists may believe that something concrete will emerge from these talks, while cynics are likely to argue that it will produce much of the same – meaning another attempt to kick the problems down the road.

Gold and equities should be raising alarm bells. The price of the precious metal remains rather strong compared to the value of the USD which has been at the higher end of its values. This could be because investors are continuing to seek safe haven assets as ‘paper currencies’ continue to be shadowed by a specter of doubts. It could also point out that some believe the EUR may in fact be in store for a rally this week based on the summit developments that could come from the Merkel and Sarkozy meetings. Equities have seen a choppy trading ground as they have essentially been whipsawed and produced little in the way of direction.

Crude Oil has outperformed other physical resources the past week, this as the Iranian geo-political rancor continues to make some investors nervous. The JPY has remained in a consolidated mode, albeit at the weaker parts of its strong range.

The broad markets have had two solid sessions in which traders have been able to take advantage of range trading and they may continue to be rewarded for continuing to pursue these opportunities. However, traders must remain alert to potential news flashes and data which could bring volatility back into the markets quickly. If the Europeans are able to produce yet another good episode of confidence building for a moment this week it will certainly stir the pot. On the other hand, if the Europeans are perceived to have failed to achieve positive steps it too could bring about impetus – albeit a negative one. Lastly investors will keep in mind that the ECB meeting later this week could produce fireworks.