Germany Provides Reality

18-10-2011

Investors took their cue from German officials on Monday. Within a matter of moments Angela Merkel and other officials from Germany were able to damper risk appetite as they pronounced that there would be no magic bullet that would solve the European financial crisis this coming weekend. Merkel went on to add that the crisis was bound to face tough fiscal matters well into next year. The EUR lost ground on the comments and the GBP and AUD followed suit. It must be noted that the selloff in the currencies was not massive taking into consideration the gains that all three made the past week. However equity markets did start to decline and Wall Street turned in steep losses for the day. The question going into today’s trading session is just how much firepower risk appetite will have left after being wounded on Monday.

The U.S. released the Empire State Manufacturing Index yesterday and it had a disappointing mark of minus -8.5 compared to the already negative forecast of minus -3.9. Quarterly earnings are also coming from the corporate front and a host of companies continue to underscore growth prospects that are not stellar. Today will be a relatively quiet day of data from the States, but tomorrow that will change as Housing data led by Building Permits are published. On Thursday the Philly Fed Manufacturing Index reading will be presented along with Existing Home Sales and weekly Unemployment Claims. Thus, traders who have been able to use the momentum from the well played confidence game via the E.U. the past week will once again be confronted by economic data and the possible combination that the European saga appears to find no end.

The EUR has done remarkably well the past week taking into consideration the amount of storm clouds that have followed it the past couple of months. Yesterday’s pronouncements from Germany served as an ugly reminder to many traders that the crisis is not an easy one to solve and that the problems faced by Greece and their effect on the banking foundations of Europe via contagion and questions about liquidity are not simple. European bourses also struggled on Monday and along with Wall Street today will provide a looking glass into the overall sentiment of investors who remain fragile. Germany will see the ZEW Economic Sentiment marks today.

Gold as of this morning is trading around 1666.00 USD and came off of its short term highs yesterday as the Greenback showed some strength. Gold remains a focus of investors who are trying desperately to gauge the vulnerability of the EUR and compare it to the safe haven status of the precious metal. If questions again to surround the EUR in a massive manner Gold could see a sudden burst of volatility as investors enter its trading grounds. Crude Oil faced headwinds on Monday and will be of interest these next few days as will all commodities. Having gained the past week on a sudden wave of optimism Crude Oil and physical resources may find that they come under more scrutiny if economic data continues to disappoint.

The JPY did crawl back to its stronger values on Monday as risk appetite slipped. The JPY remains a fixture of consolidated trading and its recent gains, though by no means huge, did spark an interest within traders who have become accustomed to its rather well known range dance. Forex and the broad markets are likely to be volatile today as questions regarding Europe appear to be mounting once again. Short term trading will have to be micro managed in order to take advantage of existing opportunities.

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