Short Term Risks
09-11-2011
The broad markets showed an increase taste for risk appetite late Tuesday. This developed as news from Italy came to light that Silvio Berlusconi has agreed (it appears) to step down from leadership upon the signing of new budget reforms. The EUR picked up some ground against the USD, and the GBP followed suit in its EUR centric mode. Wall Street responded with some gains also on the other side of the Atlantic. Gold has propped itself near 1787.00 USD as of this morning. Crude Oil also continues to meander higher. Risk appetite appears for the short term to have some signs of life in Forex.
There was not a great amount of economic data on Tuesday and today’s calendar is rather short also. Trade Balance numbers will come from the U.K. and from the States a speech is scheduled for Ben Bernanke. However the crux of impetus will continue to come from Europe – meaning that Italy and Greece are likely to remain under the spotlight. Data will stay very light the remainder of the week and it will be news from Europe that could be the biggest motivator. However it should be noted that investors have shown the ability the past couple of days to disregard headlines and turn in positive results in riskier financial assets. Not everything has been solved in Italy, and certainly not in Greece, and the financial crisis in many respects has merely been pushed to the side once again. The woes of the financial institutions in Europe from a mathematical – meaning quantitative – standpoint remains at best troublesome.
Highlighting that risk appetite has not necessarily shown an ability to become convincing as of yet, is reflected in the trading volumes on Wall Street. All the major indexes continue to show that volume is not as strong as it has been in the past which may means that not everyone has bought into the rally that has been underway since October. The EUR has done relatively well when taken into consideration with all of the plagues that surround its sphere. Its value is still rather high taking into consideration the amount of risks being expressed in some to the Sovereign Debt markets in Europe. The EUR may have to thank the rather dovish policies from the Federal Reserve for this. The U.S. economy continues to give mixed signals. While corporations are doing relatively well from a profit standpoint, American consumers continue to show nervousness because joblessness and housing values remain concerns.
The AUD has consolidated as of late and this is noteworthy. The AUD remains vulnerable to the overall health of the global economy. In the meantime the AUD has range traded much like the GBP under the momentum of the developments coming the way of the EUR. The JPY did pick up value last night and broke free of its consolidation. It will be more than interesting to see if and how the Bank of Japan reacts to this latest wave of strength in the JPY.
The broad markets have shown a natural instinct to gravitate towards optimism the past two days. Europe has been able to produce better news politically, but many questions persist. Wall Street has done well and the overall stability of the EUR has been good, but sustainability must be proven over the long term. For the moment traders would be wise to think short term instead and follow trends where they can find them.
