ECB In Limelight

A virtual standstill came into the broad markets on Wednesday as investors obviously began bracing themselves in mass for today’s ECB rate decision and tomorrow’s E.U. summit pronouncements. The EUR essentially flat lined within its lower ranges. Global equities turned in unspectacular results as investors sat on the fence. Europe remains the dynamic focus for everyone. The worldwide economy has grown cold under the assumption that the E.U. financial crisis will be difficult at best to solve. The EUR led the pack yesterday in terms of consolidated trading, but the GBP, AUD, and JPY also remained in rather tight ranges. Gold as of this morning is around 1737.00 USD an ounce. The precious metal remains an opportunistic trading fulcrum depending on perspective. Gold has declined on USD strength, but the amount of nervousness among long term investors has created some inkling of a lower level of support, this as concerns have grown about the prospects for contagion from the E.U. saga.

The ECB steps into the bright lights this afternoon. Mario Draghi will take the podium at the monthly press conference for the second time as the ECB President. The question investors must factor beforehand is whether or not the ECB will cut its key interest rate yet again by another quarter of a point. The last monthly meeting provided an interest rate cut and a stark warning that the European Union was likely to lurch into recession. As the ECB is faced with a massive gauntlet of questions regarding the health of the E.U. economy it must carefully weigh it options. Cutting the interest rate in an effort to boost lending – and thus increase spending – for businesses and consumers is important. But unfortunately that may be the easiest task the ECB faces. Liquidity concerns still exist for financial institutions, Sovereign Debt yields are problematic, and a vivid lack of clarity has intensified for investors due to the seemingly ineptitude of European leaders.

The EUR not only faces the ECB monetary policy meeting today, but the outcome from the E.U. summit which will begin to generate additional news in earnest tomorrow. Speculation about possible measures and a lack of solutions have been running rampant all week long, and investors are justifiably skittish about what pronouncements will be made tomorrow and over this coming weekend.  Having written all of the above, the EUR must be also compared to the USD long term also. And the past year of trading when comparing today’s values is actually quite similar. In fact, one may say almost too coincidentally so. Thus traders must remember that the EUR and USD not only trade under the auspice of investor sentiment, but also under the watchful eye of Central Banks which certainly have a keen interest in the value of their respective currencies.

The U.S. will be relatively light with data still. The weekly Unemployment Claims will be released, but the focus for even American investors will largely be Europe today and tomorrow. Wall Street responded with its second straight day of sideways action as investors proved unwilling to stick their necks out.

One tried and true trading sentiment is that consolidation often brings large breaks, meaning values may see sudden bursts of volatility when the time is right. Forex, equities, and commodities all appear to be setting the table for what could become a rather hectic trading landscape when the moment arrives.