Consolidated But For How Long?

18-11-2010

USD

The markets witnessed a day of consolidation across the boards on Wednesday as investors took a pause to reflect on the gyrations from the past few days. The USD waffled against the major currencies as it displayed early strength versus the EUR and GBP, but gave back its gains as the day progressed. Wall Street turned in a flat affair with mixed results across the indexes. Building Permits data and Housing Starts both came in under their estimates in the States yesterday showing that the vital housing sector remains in tatters and only a shadow of itself during the height of the real estate bubble. Today the weekly Unemployment Claims numbers will be published along with the Philly Fed Manufacturing Index.

Also coming from the States today is the Initial Public Offering via General Motors which will trade as GM. Once the mightiest companies in the world, General Motors was reduced to rubble when the financial crisis hit two years ago. Today it gets a chance to start redeeming itself and this will create a healthy buzz on Wall Street. However, the IPO is unlikely to change overall sentiment that is being generated from an air of caution (confusion) from the Sovereign Debt concerns that are an ongoing story across the Atlantic and the debate that still pervades regarding the Federal Reserve’s monetary policy. There will be little in the way of economic releases from the U.S. tomorrow, thus sentiment is sure to come from the above and given the volatile nature of the market place, participants should expect any degree of consolidation to promptly turn into swift trading. Although the USD did not hold its gains on Wednesday, it didn’t veer off into losses either against most currencies.

EUR

The EUR remains within the Irish storm that is causing investor unease and the possibility of other doubts causing fires. The EUR struggled in early trading versus the USD falling to new recent lows, but it did manage enough backing as the day ended to find itself within an apparent holding pattern. There was little data from Europe yesterday and today only the broad Current Account statistics will cause a statistical stir. The Irish banking and debt situation is undeniably the lynchpin for the EUR at the moment, and the Spanish bond auction on schedule will likely feel its affect today. Ireland has defiantly said no thus far to any bailouts, but this is not because they do not need them, it is because they are apparently not agreeing to the conditions that will come with an acceptance of a European and IMF package. Ireland will certainly be asked to take economic measures that they will not find comfortable and until some measure of agreement can be found rancorous words may be heard. The EUR has declined the past week and investors are likely starting to ask where its true value is. The Single Currency appears set to trade under pressure today and tomorrow.

GBP

The Sterling maintained an air of stability on Wednesday a day after declining against the USD. Claimant Count numbers were slightly better than anticipated, but the economic outlook for the U.K. remains cloudy and its housing market is still showing signs of duress like its counterpart in the States. Plenty of data will come today including in the Preliminary Mortgage Approvals, Retail Sales, and Public Sector Net Borrowing. This set of reports will certainly be quite a bit of information for investors to swallow. The problem for the Sterling and its trading is that it is directly under the weight of a EUR centric storm for the moment that is being generated as questions mount regarding debt. The GBP has lost some ground to the USD in the past week and traders will have to be aware of the complex web that is confronting the GBP today.

JPY & AUD

The JPY traded in a consolidated manner on Wednesday as bourses found some stability. The sudden weakness (albeit slight) in the JPY may be positive development for the Japanese export companies, but it will take more than a mere week’s worth of trading to convince all investors that a reversal is taking place. The AUD gained some ground on the USD yesterday and this can be directly measured with the trading in Gold, which climbed towards the end of the day – off of its lows – and into the vicinity of 1352.00 USD an ounce.

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