Entering Holiday Mode Soon
16-12-2010
The broad markets were swept with rather risk adverse trading on Wednesday as the USD picked up ground versus the EUR, GBP, and JPY. The USD gained as Wall Street had a slightly negative day and other global bourses declined. The trading was brisk, but it is wise to remember that we are now entering the last days of full volume before many investors close their books and leave for the holidays. Therefore trading results - even if you anticipated the numbers and were on the winning side of the movement - must be viewed cautiously. The USD has done well the past day and half, but today is a new beginning and it will be more than interesting to see if the greenback sustains its momentum.
While the U.S. was releasing a better than expected Empire State Manufacturing Index result, the shadows of Europe prevailed as the ECB and other European officials were not able to deliver and clear indication on policy. The EUR continues to falter in sentiment due to the fear of contagion in the E.U., and with this in mind there is talk that Spain might suffer a ratings downgrade on its bonds soon. Germany remains the focus for investors who are looking to the nation as the ‘king maker’ regarding new E.U. monetary policy. Germany has been steadfast against a so-called European Bond issue, but it has not totally walked away from discussions on other measures such as an increase in capital requirements. However, no agreement has been reached and the E.U. will continue discussions today in Belgium.
The U.S. will continue to issue plenty of data today and for those paying attention it includes Building Permits, Housing Starts, and weekly Unemployment Claims. The housing sector in the United States remains a critical barometer in the U.S. besides unemployment. Housing prices remain under immense strain and a glut of vacant homes remains a problem in many places. Flash Manufacturing and Services PMI reports will come from Germany and France today and they are forecasted to be near their previous outcomes. But investors are likely to remain skeptical about most data today from the States and Europe and are likely to continue to focus on existing sentiment which has been nervous – and the upcoming holidays.
The GBP had a sluggard day of trading and lost value to the USD. The Sterling continued to trade under a EUR centric mode and it has not really shown an ability to break free of sentiment which suggests that if Europe suffers the U.K. will not be far behind regarding debt and austerity issues. Consumer Inflation Expectations data will be released today.
The JPY and AUD traded in range against the USD. The Japanese currency lost some ground to the greenback, but continues to trade in a known range and has yet to break free of its rather consolidated pattern. The AUD lost a bit of ground to the USD, but did not react as much as might have been expected considering that Gold traded somewhat weaker on the day. Also worthy of mention is that China continues to talk about inflation which is still at a rather uncomfortably high rate domestically. China has been trying to cut down money supply and limit bank loans besides starting to change its interest rate the past month. As China battles inflation within its own sphere interested parties will continue to watch its actions carefully from the outside.
