Watching The Federal Reserve

The USD held onto its tentative ground on Friday, but it still finds itself against the weaker parts of its trend against the major currencies. The Non Farm Employment Change number turned in an ugly minus of -95k, which was worse than the estimated outcome of minus -1k. Showing that the American economy continues to struggle in a critical sphere and this will likely affect consumer sentiment going into what will become an important holiday shopping season. Wall Street didn’t completely slump on Friday and remained fairly faithful to its range, turning in a mixed day that appeared to be more about sitting on the fence. In some respects the poor jobless figure may have continued to spur on the belief that the Federal Reserve is bound to try and enter the economic stimulus ballgame again.

The U.S. has the Columbus Day holiday which means its banking will be closed, but exchanges will be trading and volume could be low. Coupled with a holiday in Canada, North America may be ripe for some interesting trading for those who venture into the waters today in later sessions.

The G-7 met over the weekend, but failed to resolve its outstanding issues which center on the fact that nations are taking it upon themselves individually in many cases to try and stimulate their own economies by manipulating their currencies in order to create export demand. The IMF is now being looked to in order to help, but historically it has proven tough for the institution to enter the currency domain and help foster resolution of such arguments and problems.

The EUR and GBP continue to find plenty of backers under the pretext that the USD is struggling due to the strong belief that the Fed is in the wings and ready to act. Economic data from the European continent and the U.K. continue to bring lackluster figures, but this has not stopped the Single Currency or the Sterling from finding a very positive run the past month. French and Italian Industrial Production statistics are on schedule today and the results are not expected to be pretty – in other words minimal or no gains are anticipated. The U.K. will release the RICS House Price Balance numbers today and the BRC Retail Sales Monitor, but the crux of investor attention will continue to focus on Central Banks – the Bank of England in this case. Tomorrow inflation data will come forth from the U.K. and this is likely to stir the hearts of traders as they weigh costs, growth, and austerity.

The JPY continues to make a strong run as it pushes ahead and finds the highest boundaries of its value. The Bank of Japan has not made a move to intervene since its action a few weeks ago and investor eyes are on the central bank. The AUD also is finding itself at the highest levels of its value, but its run is coming in the shadow of a record Gold price and the combination of a weak USD.

The question going into this week is how long will the USD continue to trade under the haze of the Federal Reserve? Also global equities have performed relatively well holding onto their gains from the previous month, even as economic data continues to show that many major economies are struggling to maintain any semblance of growth. Commodity prices have sparked upwards recently and physical resources will have to be watched carefully to determine why they are experiencing such movements. The broad markets show many signs of nervousness and trading sentiment in many respects is on a razor’s edge. The markets will likely continue to see swift action this week and participants will have to be ready with insight and a strong stomach.

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