Mixed Data, Plenty Of Questions

In a sudden shift the USD gained ground against the EUR on Tuesday while suddenly losing momentum against the GBP. Better than anticipated CB Consumer Confidence numbers were seen, but they were hardly earth shattering. Also the S&P/CS Composite 20 HPI was published and came in under its estimate. Wall Street produced slight gains. The USD is still very much in known short term ranges against many of the major currencies. Today the U.S. will release Core Durable Goods Orders and a gain of 0.4% is expected. Tomorrow weekly Unemployment Claims will be brought forth and Friday will provide the highlight of the week for data when Advance GDP statistics are announced. The U.S. election season is approaching next week and it is a certainty that investors will be also trying to balance their viewpoints until the American public makes its opinion known at polling stations.

The GfK German Consumer Climate reading was released yesterday and did not meet expectations coming in with a mark of 4.9 against the estimate of 5.2. The U.K. did get better news as its Preliminary GDP results showed that the economy is holding onto growth with an outcome of 0.8%, which was better than the anticipated figure of 0.4%. The outcome in the U.K. will give a boost to the government as they continue to make their way through tough austerity measures and seek growth at the same time. The Sterling was able to muster support and now is solidly back in a range that will offer opportunity for those who feel they have a strong outlook. Europe will be fairly light with data today as the Germans bring forth their Preliminary CPI statistics and the French release Consumer Spending. The U.K. will have no major data today.

The JPY lost a bit of ground to the USD on Tuesday, but remains well within its consolidated strong range versus the greenback. Investors will continue to watch Asian bourses, but the crux of any major movement may come on the Bank of Japan’s monetary policy meeting early Thursday. The Japanese government has stated on numerous occasions that it wishes the JPY were weaker, but the question is how much ammunition the BoJ has in order to combat its rather grueling value which affects export companies negatively. The AUD did lose ground to the USD yesterday and this occurred as Gold was pushed around much of the day.

Currency trading continues to be based strongly on sentiment being generated around the belief that Central Banks are trying to manipulate their particular currencies in order to get a strategic advantage in the marketplace. A Chinese official this morning accused the Federal Reserve in the U.S. of printing money. The international economic prospects continue to be murky. The U.S., Europe, and the U.K. – also Japan – face difficult tasks as they try to attain growth. Perhaps governments and Central Banks will have to accept a slower rate of growth for a duration (and perhaps they have already), but certainly what they fear is recession and deflationary pressures. To make it even a more complicated saga, inflation has seeped into the costs of food as basic commodity prices have climbed.

The task at hand is to find a policy that allows for a free market internationally and one that does not spark protectionist policies which could set off a domino like effect and cause harm. Nations tend to look after themselves first and foremost and their currencies are a reflection of this. The USD continues to trade in a manner that has it bouncing along the weaker side of its ranges against most of the major currencies. The question for investors is how long this will continue and they must formulate an approach to short term versus long term trading.

Written by bforex.com