Volatile Clouds As G-20 Starts
22-10-2010
Thursday proved to be a cautious day of trading across the broad markets as the USD traded in known ranges against all currencies. While the U.S. was releasing a lackluster weekly Unemployment Claims report and a disappointing Philly Fed Manufacturing Index outcome, investors stayed focused on the larger picture which incorporates sentiment that continues to flow from Central Banks, particularly the Federal Reserve and the implications that are in store under a cloud of a weakened USD policy – no matter if it is stated or not. The consensus viewpoint is that the Fed will once again use quantitative easing sometime in early November. The question is not really if it will act anymore, but with what force it will bring to the battle. The fact that a crucial election is about to take place in the U.S. also must be accounted for and it will be of interest to see how independently the Fed acts if the Republicans regain congressional power.
There is not much in the way of data scheduled from anywhere today and the crux of attention will be on safety, before whispers begin to emerge from the G-20 meetings that will take place all weekend long. The German Ifo Business Climate reading is expected today and has an estimate of 106.5. Economic figures from the major industrial countries continue to be rather sluggish and what has ensued is a confidence game in which officials have tried to keep investors and the public comfortable. The results of the G-20 are unlikely to produce any major surprises and the speeches are certain to include phrases about keeping the major currencies on a balanced scale in which volatility is curtailed. However, that is easier said than done and no matter the diplomatic words spoken, nations have shown the desire to act in their own self interest.
The JPY traded in moderate ranges yesterday too, the JPY found itself in a consolidated format under cautious trading. The AUD did come off of its highs as the price of Gold struggled. It will of interest to watch what the AUD does today before going into the weekend and it will certainly stay under a Gold centric shadow.
The values of the USD, EUR, GBP and all other major currencies continue to trade in vulnerable ranges and this will have the full attention of the G-20 as they begin their meetings today. The fear is that if the USD becomes too weak and other currencies gain too much in value that the world economy will be hampered. The dilemma for the G-20 is trying to find a way in which to convince the U.S. and China to cooperate and achieve a result that will benefit everyone. The political sphere is likely to be a crucial focal point for investors today and this weekend. Traders should be aware that they will be participating in markets in which safety is likely to be sought. The question is how each and every investor interprets safety going into the weekend under volatile clouds.
