Credibility In Question

Tuesday started off with negative sentiment continuing to punish the EUR against the USD. However as the day progressed the EUR was able to find some stability and came off of its lows. The EUR/USD has been swift the past few trading sessions and this is unlikely to change anytime soon. Traders must continue to be aware of news flows as much as economic data. Rumors are abundant, but so are legitimate reports such as another ratings downgrade – this time for Ireland last night.  The EUR and its European equities have all been put to the test as concerns about possible contagion have grown regarding the debt crisis. The fears surround the possible effects on national governments and their respective banking institutions. The Europeans have failed to deliver a clear directive which outlines a mechanism in order to achieve financial stability for the nations coming under scrutiny. It is the lack of a real plan which has caused a credibility problem for the EUR and its collective financial institutions.

Economic data was rather light yesterday, but nevertheless the numbers presented from the U.K. and U.S. was less than overwhelming. Trade Balance numbers from both nations proved negative, and housing prices were not bright either from the U.K., which kept the GBP in a relatively weak position against the USD. Economic reports today will once again be somewhat quiet as Europe releases its Industrial Production outcome and the U.S. will bring forth Crude Oil Inventories. Commodity prices did manage to gain on Tuesday across the board. Gold climbed to record highs and as of this morning finds itself around 1566.00 USD.  A ‘flight to quality’ has obviously helped Gold in the meantime. But Crude Oil and Grains also did well and the question must be asked why. Was it a speculative presence as some investors tried to bottom fish for values that led to these rises?  The same can be asked about Wall Street’s results yesterday as the major indexes were able to slightly recover some balance. However going into today’s trading sessions it would take a brave investor to proclaim that cautious sentiment has been put to bed.

The JPY gained yesterday and finds itself touching the strongest parts of its value. The Bank of Japan is rumored to be watching the gains made by the JPY closely and traders should be on the lookout for a possible intervention. However it is questionable as to what the impact could be from a BoJ action taking into consideration the amount of safe haven impetus that is rampant in the marketplace.

The AUD has traded in an awkward and consolidated manner the past two sessions. Traders have a dilemma facing them with the AUD, as Gold has soared to record highs, and the global economic outlook is less than bright and any knock on affects from the European debt crisis are contemplated.

Data from the U.S. tomorrow will include Retail Sales figures and weekly Unemployment Claims. Friday the Empire State Manufacturing Index and Consumer Sentiment will be presented. These reports with the prospects of surprising quarterly earnings reports coming from the corporate front could be enough to shift investor sands. However, the question is just how big the influence can be with so many concerns still aglow regarding the European debt crisis. For traders it will be a matter of managing risk management and opportunities which are abundant because of the fast Forex and Commodity markets. For government officials in Europe and the States it will be a case of managing a confidence game that is fragile and needs loving care.