Trichet To Face Tough Questions

The USD lost additional ground to the EUR and GBP on Wednesday as the broad markets showed a taste for risk appetite mirrored via the results in the global equity markets. Portugal was able to have a successful bond auction and apparently did enough to qualm the nervousness among investors temporarily. There was little in the way of economic data yesterday, but the States did see another decrease in Crude Oil Inventories and an USDA report on crops, which showed a slight downgrade of crop sizes in the U.S., was enough to cause a surge in many commodity prices. Today there will be a strong combination of events which could spur on swift trading internationally.

The U.S. will release weekly Unemployment Claims and a very slight improvement to 405k is expected. However the main scope of focus will continue to come from Europe with the Spanish and Italian bond auctions in addition to the ECB Press Conference with President Trichet. The questions that Trichet will face are likely to be harsh if journalists having been paying attention to the depth of the European bond crisis, this because the ECB has been a large participant in buying bonds from its member nations in an effort to stabilize Sovereign Debt. President Trichet has been adamant about European nations showing more fiscal responsibility, and asking for a plan of action to stay within economic parameters, but he has condoned the ECB’s acting as an ‘insurance’ policy as certain nations have faltered. Trichet will be asked to justify the ECB’s official position today.

The U.S. will be releasing Retail Sales data tomorrow and these figures will be of interest coming out of the holiday shopping season. However going into today’s trading investors will continue to look at Europe in order to gauge their sentiment. The data from the U.S. has been slightly better the past month, but last week’s unimpressive jobless figures were a stark reminder that the U.S. economy still faces major hurdles.  The USD has lost some value to the EUR the past two sessions, but it remains within the stronger boundaries of its long term range versus the Single Currency.

The Sterling traded higher on Wednesday as it reacted in a positive fashion to the results coming from Europe. The GBP continues to trade in a heavily EUR centric manner and this is likely going to be the case the last two trading days of this week. The Bank of England will be releasing their MPC Rate Statement today and no surprises are expected. The U.K. Trade Balance numbers yesterday were lackluster as they came under expectations, today the Manufacturing Production data is on schedule and there is an anticipated gain of 0.5%. Tomorrow PPI figures will be released which could spur on some divergent trading between the GBP and EUR as the inflation numbers are weighed against what has been relatively weak data from the U.K. the past month. The GBP has lost value with the questions hovering over the EUR, but its range is well established and the Sterling finds itself in a fairly comfortable range compared to the USD. The real tests for the GBP will come if risk appetite begins to decrease.

The JPY found itself in consolidated trading most of Wednesday as traders continue to show a lack of direction. The JPY has found a rather tight range the past few sessions as investors have taken a wait and see approach. The AUD did climb in trading yesterday and this came on the ability of Gold and other commodities to rise in value. Gold is trading around 1385.00 USD, which represents a rather interesting testing ground for future moves.