Volatility Enters Again
01-11-2011
The broad markets opened Monday in a swift manner and they did not relent for the remainder of the day. The JPY kicked things off as the BoJ intervened in the Japanese currency. And then things began to get interesting in Europe as Retail Sales from Germany faltered, coming in below expectations and setting the table for negative sentiment to start again. Rumors also began to swirl early in the day that MF Global, a large American financial trading house, was suffering and on the verge of declaring bankruptcy, which they promptly did several hours later. This sent markets into a tailspin as risk appetite was quickly pulled off of the table. The EUR, GBP, AUD all suffered losses. The EUR was weak leader as investors once again began to question the long term capabilities of the E.U. to solve its financial woes.
The volatility seen in yesterday’s markets is likely not to vanish. Today may be a relatively mild day of data with the ISM Manufacturing PMI numbers coming from the U.S. and the U.K. delivering Nationwide HPI, Preliminary GDP, and Manufacturing PMI - this when compared to what begins tomorrow with the FOMC Statement from the States, but combined with the rapid amount of news flow traders should not expect a boring Tuesday. The Greek government yesterday proposed to allow its public to vote on the austerity measures and financial package that it has made an agreement with the E.U. in order to receive more aid. The fact is that it is unlikely that the people of Greece will approve the measures and this could open the door for the Greece government to throw up their hands and announce that they can no longer comply with the European Union’s wishes. If this scenario were to play out it would open the possibility for a proverbial litany of evils.
While the EUR traded lower in a rapid manner on Monday, the GBP did not get hit quite as hard although it declined too. The Sterling may have an interesting day because of its data publications and the possibility that it could allow for divergence from the EUR. The U.K. economy has been struggling mightily and many questions and doubts surround its ability to achieve growth. If the data comes out negative it is likely the GBP will simply continue to shadow the EUR centric mode it has followed for months. However, if the numbers should somehow surprise investors and come out better than expected it is possible that the GBP could gain against the EUR in trading today.
The JPY which weakened considerably yesterday in early trading has actually begun to get stronger again. The strength in the JPY began late on Monday and what this shows is that investors do not entirely believe the Japanese have the same ammunition that the Swiss have when it comes to being able to maintain some type of anointed peg rate. Meaning that the JPY may find itself actually continuing to get stronger, this until the BoJ can deliver a knockout punch to traders who are speculating short term that the intervention will ‘fail’.
Forex saw a rapid day of trading on Monday and this will not change with so many risk events on the schedule this week in terms of data and news developments. Commodities also need to be watched. Crude Oil could find plenty of attention if economic data falters and demand comes under question again. Gold is trading around 1717.00 USD an ounce as of this morning and is showing a consolidated mode.
