Concern & Volatility

Caution has grown into outright concern among investors taking into consideration the manner in which safe haven trading powered its way into the broad markets on Tuesday. While Gold soared to record highs the equity markets led by the major indexes form Wall Street have been on a downslide. Economic data has proven negative the past couple of months and investors have seemingly come away with the belief that growth prospects will be challenging at best. In addition to poor data, the debt crisis from Europe, questions about transparency, the States own affair with debt ratings, have all coalesced into nervous sentiment. As swift as the Forex and Commodity markets have been as the USD has picked up steam against the EUR and GBP, traders must take into consideration that important data will be published these next 3 days.  And to top it off Spain and Italy are finding themselves under the spotlight regarding their Sovereign Debt and their bond yields are experiencing extreme pressure.

The U.S. will see the release of the ISM Non Manufacturing PMI, the ADP Non Farm Employment Change, and Factory Orders numbers today. The jobless data parade commencing is sure to create some tension. The unemployment situation in the States remains a critical lynchpin for American consumers who pulled in their Personal Spending by minus -0.2% last month per yesterday’s release. The housing sector remains in a crisis state in the U.S. and last week’s disappointing GDP additionally makes the overall outlook rather precarious. The USD found backing in mass on Tuesday and the question is if it will be able to sustain its values and break through its range. Traders know full well that although the EUR has been under a significant amount of pressure because of its debt crisis saga that its actual long term range has remained fairly constant. Thus, traders must ask themselves if the ‘flight to quality’ that is underway will break what have been long term consolidated ranges.

The U.K. will release its Services PMI reading today. The GBP has moved lower in tandem with the EUR against the Greenback. The question for Sterling traders is when and if the GBP will become divergent with the EUR? Until then it is likely that the Sterling and the Single Currency will move in similar manner. The BoE and ECB both have their monetary policy meetings tomorrow. The BoE has been very dovish compared to the ECB and this has not gone unnoticed. The prospects for growth in the U.K. face large hurdles like their counterparts and this is not going to change anytime soon. The Sterling has moved to the lower parts of its range against the USD again and traders will continue to see tests for the GBP.

The AUD slid on Tuesday and this occurred as economic data among consumers in Australia has started to show signs of distress. Consumer spending makes up about 17% of the Australian GDP. Thus even as Gold has glimmered and climbed to new highs – as of this morning around 1667.00 USD and trading fast – the AUD has found itself under pressure with global growth concerns. The JPY has been consistent and has given its backers a sense of preservation.

The overall sentiment for the broad markets is nervous. Typically in August markets are moderate and quiet in nature, but they have been nothing like this as the month has gotten underway. With so many key reports coming from the U.S. on schedule and the European debt story continuing to mount, volatility is likely to remain a meaningful part of the trading landscape.