German & French Summit

Wall Street and other global bourses turned in gains on Monday as stability came into the broad markets. However the question investors are asking is if yesterday’s gains will prove nothing more than a ‘relief rally’, meaning that volatility will once again make itself known. While the major stock indexes in the States did well the U.S. actually turned in a very distressing Empire State Manufacturing Index with a result of minus -7.7 compared to the expected gain of 0.5. Today the U.S. will release Building Permits and Housing Starts numbers. The fact is that the manufacturing base in the U.S. has turned in increasingly alarming results the past two months and Thursday’s Philly Fed data will be important for those paying attention. The broad markets are still trading largely based on nervous sentiment.

The EUR gained against the USD on Monday, as did the GBP and AUD. The EUR found some momentum perhaps because of the upcoming meeting today between France and Germany in Paris which will discuss the financial crisis in Europe. The problem is that not much in the way of concrete solutions is expected from this summit and the EUR is likely to find that yesterday’s gains are simply within a known range. Also the Swiss National Bank is said to be discussing a myriad of ideas on how to ‘protect’ the CHF from being overbought. News also circulated on Monday that the ECB has spent nearly 22 billion in an effort to strengthen the sagging Sovereign Debt markets of Europe. And to put it bluntly the participation of the ECB solution is not considered a long term solution for the problems the E.U. is facing. Germany will release its Preliminary GDP today and the forecast calls for an outcome of 0.5%. Germany is by far and away considered the cornerstone for the European economy and any surprises could affect the EUR/USD. The Europeans could be a big factor in the Forex markets today.

Gold continues to trade near record highs and as of this morning is around 1767.00 USD underscoring that safe havens are still being sought. While there is certainly a speculative flair to Gold’s advance there can also be no doubt that fear has helped propel the precious metal significantly higher. The high reached by Gold was this past Thursday when it broke through 1800.00 USD as equity markets tumbled. Other commodity markets did find the ability to gain on Monday including Crude Oil. Traders with the intention of participating short term must remain attentive to all sudden developments. The outlook for the markets remains skittish and the possibility of swift movement emerging aggressively should not be discounted. Equities will hold the key for much of the overall sentiment today and the commodity markets will stand in its wake.

Inflation data will come from the U.K. today. However the GBP has been clearly under the shadows of a EUR centric mode for a while. The U.K. continues to face difficult economic prospects. The Bank of England has a well known dovish policy regarding its interest rate, but this has failed to help spur on much in the way of growth. The bigger picture for the GBP clearly includes the well being of the American and European economic prospects. With global forecasts now being slashed and the possibility of a recession being discussed it stands to reason the GBP will continue to range trade.

The AUD did gain on Monday as stability was seen. The AUD remains in a tricky position and traders should take into account that worries about a global downturn are having an effect on the Australian currency. The JPY remains staunchly near its highs against the Greenback highlighting that investors continue to seek perceived comforts. The Bank of Japan is being watched carefully as they monitor the situation and have made it clear in the past that they would prefer the JPY to be weaker.