Divergent Opinions Abound

The USD lost ground to the EUR as Tuesday rounded off its trading day. When things started out earlier the USD made gains against the EUR and GBP, but as the Americans returned from their holiday it became apparent that the USD started to lose value and fall back to the weaker sides of its range. The news from North Africa continues to stir market sentiment. Crude Oil continues to trade at its highs and Gold is hovering around 1400.00 USD an ounce. Commodity prices as a whole must be watched, because even before the political tension that is roiling the international sphere physical resources were gaining. Now that the political crisis has driven up the price of Crude Oil the question is how unstable the price can become and its potential impact on the world economies. Clearly high energy costs will have a direct affect on manufacturing and could be a crippling event if it causes inflation while consumers remain in a fragile state in many nations.

The U.S. released a poor S&P/CS Composite-20 HPI result on Tuesday as it reported that housing prices had dropped across the States more than even expected. This highlights that the housing sector has not stabilized and in fact continues to be mired in a severe deflationary mode. Today Existing Home Sales will released from the U.S. and its estimate nearly matches the previous outcome. Simply put housing remains a core problem in the States. Also yesterday, Wall Street suffered a down day, its worst trading day of the year in terms of losses. Poor quarterly reports and the combination of high energy costs did nothing to bolster confidence. The bond markets did relatively well as investors sought so called safe haven avenues. Which leads us to the question about the USD’s performance yesterday - that was not good for Greenback supporters, why did the dollar drop back? It will prove more than interesting over these next few days to see where the USD finishes the week. Friday will see GDP numbers from the States. Many storm clouds hover internationally and this makes for a divergent amount of opinions with a variety of outlooks.

The EUR continued to show strength as the day wore on Tuesday. After starting out on a weak footing while the Asian and European investors were the dominant force, the EUR started to actually gain as the Americans entered the marketplace. Europe will be relatively light with data today with only the Industrial Production numbers on the schedule. Tomorrow the Final German GDP figures will be released. The financial problems of Europe have not gone away. Portugal stands next in line regarding its obligations in March and its prospects are not bright. Italy has taken a beaten in its bourse due to its large trade relations with Libya. The debate regarding the foundations of a unified emergency fund for Europe remain argumentative also, without any formative outline delivered.  The EUR has done remarkably well the past month and a half, but with so many global risk events developing the question is if Europe will be able to steer itself to calm waters if the storms grow.

The GBP traded in a similar fashion compared to the EUR on Tuesday. The Public Sector Net Borrowing figures were better than expected, but had little to do with the trading of the Sterling. Today the Bank of England will release its MPC Meeting Minutes report and investors will be keen to see the rumored level of division that supposedly exists within the Central Bank among its members. The U.K. like Europe and the U.S. are all dealing with struggling economies and rising core prices for food and energy. The BoE has been at the forefront of austerity measures and this has been coming up against lackluster growth prospects. The prospect of inflation causing problems is another thorn in the sides of BoE members and has been causing a not so private debate. The GBP goes into today’s trading at the stronger sides of its trend.

The JPY did get stronger on Tuesday as safe haven trading among Asian investors became clear. With Asian bourses all suffering declines the JPY found itself a magnate for investors. The JPY now finds itself squarely within the stronger side of its value and the question is how strong the JPY could become with global risk events developing. The AUD traded slightly lower on Tuesday and its value remains leaning against the stronger parts of its range.
With so many risk events, investors will have to reflect on all the broad markets and ask themselves what their short term outlooks are compared to their long term beliefs. Crude Oil has certainly gained value, the question is what will happen next and the impact on worldwide economies if the political crisis continues to mount from the Middle East and North Africa.