EUR Sentiment Leads
27-10-2011
The E.U. announced their decisions late last night and investors in the short term have proceeded to sustain the value of the EUR which is at near term highs. While questions persist and concerns have not gone away, what the E.U. has been able to achieve looks like another victory within the confidence game that is being waged. Equities in the U.S. and Asia have responded well to the initial plan which speaks about a ‘haircut’ on Greek debt and the raising of over one trillion dollars to bulk up an emergency fund. The real questions still consists of what will be in black and white on paper and how it will actually work out. The plan has been spoken about for weeks, if not months, and investors will be the final judge within the broad markets.
The U.S. releases Advance GDP today and a number of 2.4% is anticipated. This number will prove more than interesting. And any surprises will certainly spur on market action. Equities in the States have performed rather well this month after two months of struggling, and the GDP number today may serve as a lynchpin for risk appetite. Tomorrow the University of Michigan will release its Revised Consumer Sentiment survey, which is unlikely to cause much of a stir. Thus trading today will be factored on the fallout from the E.U. plan pronounced last night and today’s U.S. GDP numbers.
It is natural for investors like most people to gravitate towards optimistic sentiment with the notion that tomorrow will always be better. The E.U. plan appears ‘wonderful’ on the surface and officials are smiling, but what lurks beneath the table remains a troublesome question. Greece is certainly not solved, Italy remains a thorn, banks have not officially signed on and face liquidity problems, and contagion remains a real fear. The fact is that Europe will have to deal with these issues for a long time particularly if growth remains hard to attain. Financing the problems that are faced by the continent will have to be dealt with by investors as part of the landscape. And it will be up to the investors on how best to translate their sentiment.
The GBP and AUD have remained under a EUR centric manta and have done well. The global economic outlook remains a tangible part of the Forex market and the storm clouds that have pervaded have certainly had their effect. The GBP and AUD have both done remarkably well the past three weeks and have turned in solid gains against the USD. CBI Realized Sales will come from the U.K. today, but the Sterling is bound to remain in lock step with its EUR correlation. The JPY continues to inch towards new highs in value and the BoJ is being watched carefully for an intervention which some believe could come sooner rather than later.
Gold maintained its gains from Tuesday and managed to stay above 1700.00 on Wednesday without problems. As of this morning the precious metal is 1724.00 USD and its price may underscore the fractured sentiment in the broad markets. Crude Oil fell a bit yesterday and like all the physical resources have had an interesting run over the past few weeks. The broad markets will be of keen interest today and tomorrow as investors gauge their risk appetite because in reality much of the market is being fueled on short term sentiment that has been led by the Europeans the past two months.
