Volatility Making A Comeback?

Just when it appeared that it may be safe to swim the calm waters of range trading, volatility appears ready to come into the picture again. The USD firmed against the major currencies on Thursday and this occurred with little in the way of substantial economic data. However, what has happened in the past twenty hours is that investors have been given a dose of harsh air which may bring about some risk adverse sentiment. The continuing saga in Egypt which is unresolved and heads into another potentially big day of developments is one highlight. The second news item that could bring about jitters, particularly in Europe, is the situation surrounding Axel Weber and the decision that he will not pursue the position of the ECB President when it becomes available upon the retirement of Trichet.
The U.S. did release weekly Unemployment Claims on Thursday and they were better than expected with a result of 383k compared to the expectation of 411k. Wholesale Inventories statistics though disappointed in the States. Wall Street turned in a rather uninspiring day, and it is possible that a growing sense of unease due to the ongoing Middle East story, the Weber news, and preexisting caution all combined to have an effect. Today the U.S. will release Preliminary Consumer Sentiment marks from the University of Michigan and the anticipated mark is 74.8. But going into the weekend the USD may find itself trading more on the notion that it may be a safe haven avenue if news becomes shakier from across the oceans. The USD still finds itself at the lower ends of its value against the EUR and GBP, but in late trading yesterday the Greenback showed that it has the ability to attract buyers when caution comes into focus.
The EUR slipped against the USD without much in the way of economic data from the continent. Italian Industrial Production numbers were released and were lackluster, but German numbers had proved previously disappointing earlier this week without much effect. Thus yesterday’s late move in the EUR may have been more of a reaction to the developing saga in the Middle East. And it cannot be underestimated what type of reaction the news surrounding Axel Weber will have on EUR investors who viewed him as the heir apparent for the job of ECB President. Not only was it a foregone conclusion by most in Germany that Weber would be nominated and get the job, but it was also a widely held belief elsewhere – particularly among Federal Reserve officials in the States – that Weber would be the torch bearer for the EUR in the years to come. Now that this is NOT going to take place and the debate opens up wide as to who will replace President Trichet - it points out the political and economic debates which are certainly taking place in the European Union, particularly Germany regarding its long term ambitions and goals for the economic union. There will be some inflation data from Europe today, but the data is certain to be overshadowed by sentiment generated elsewhere going into the weekend.
The GBP had a fairly stable day of trading. The Sterling did lose a bit of ground to the USD but its move was not as violent as the gyrations the EUR had against the Greenback. Manufacturing Production numbers were released from the U.K. yesterday and the result of minus -0.1% was below the forecasted gain of 0.5%. The Bank of England surprised no one as it held onto its low interest rate like its international counterparts in Europe and the States. Today PPI data will come from the U.K. and this could prove interesting if it is above prevailing expectations. The BoE has been taking some heat from various officials for not responding to what is seen as growing inflation in the U.K. and today could prove an interesting day for the GBP if the numbers are higher than the estimates.
The JPY lost ground to the USD in late trading on Thursday and finds itself at the lower parts of its value against the Greenback. The AUD has lost value three days in a row against the USD and this has come as the price of Gold has increased. The correlation between the AUD and Gold has to be looked at with a suspicious eye for the time being and it appears that the AUD is trading under the weight of international interests currently.