Confidence Game Going Into Weekend

The broad markets performed another rather tight performance on Thursday as the major currencies all showed consolidation. The biggest change has been the price of Gold which has sunk as of this morning to 1311.00 USD. Crude Oil is also showing downward pressure and finds itself around 85.00 USD a barrel. Interestingly enough as officials and investors started to’ talk up’ inflation in the commodities, they have suddenly started to drop in value suggesting that speculative elements remain prevalent in the physical resources. The U.S. will release Advance GDP numbers today and this could provide a springboard for sentiment if any surprises emerge. A gain of 3.5% is anticipated today and it will be important for investors to see this result or better in order to sustain the amount of risk appetite that has come into the markets the past two weeks.

On that note, the JPY must be watched carefully. S&P downgraded Japanese government bonds yesterday warning that their high debt to GDP ratios are now officially a concern. Japan reacted swiftly saying that they will begin to reform their spending habits, but the proof has not been seen in the pudding for many years and it will prove more than interesting to see if Japan can muster the political will to actually take strong measures after years of trying to maintain stability and not make radical changes. The JPY actually didn’t lose much ground to the USD on Thursday and it remains within its known range. Sovereign Debt issues have certainly been a focus for Europe and now more attention will turn to Japan which has one of the world’s largest economies. The JPY remains one of the most internationally important currencies in trade because of the amount of export that Japan facilitates. The JPY will become an interesting focal point in the months to come.

The Davos World Economic Forum will continue in Switzerland today, and central bankers and business leaders are offering their viewpoints on the economy and the risks it faces. The EUR traded in range against the USD on Thursday as did the GBP. The EUR and GBP are both maintaining the higher end of their values against the USD as risk appetite has apparently come back into the investment sphere. There are still many questions that must be answered by Europe regarding its Sovereign Debt crisis. However, the talk from the ECB warning about inflation and Angela Merkel saying that Germany will stand by the EUR have helped the Single Currency.

While the United States produced negative Core Durable Goods Orders and weekly Unemployment Claims statistics yesterday, the broad markets seemed to shrug these results off. Today’s Advance GDP numbers will be important. The U.S. must show that it is sustaining its economy and growing it. Confidence has grown in the past couple of months regarding the possibility that the U.S. is going to pull itself out of the tough economic problems it has faced the past two years. In essence investors have shown a desire to buy into the confidence game of the investment world and are starting to exhibit signs of participating in riskier assets. However many hurdles remain in the States and globally. Huge debt, unemployment issues, and consumer spending are not only issues in the United States. Going into the weekend traders should keep their eyes on equities, the price of Gold, and bonds and their overall affect not only on the USD, but the AUD also. The AUD has held its ground even in the face of pressure on Gold and this should illustrate that the markets remain rather speculative and volatility could become part of the landscape as Friday’s trading transpires.