Fragile Markets To Be Tested More

The broad marketplace continued to trade under the clouds from the possibility of an ‘oil shock’ as political tensions continue to mire North Africa. Global investors have watched as international bourses have largely lost value. The USD lost ground to the EUR, GBP, and JPY on Wednesday. Gold is trading at 1410.00 USD per ounce as of this writing. The U.S. released Existing Home Sales yesterday and they turned in slightly better numbers, but this doesn’t mean that home prices have suddenly reversed, thus the outcome was largely ignored. Today the U.S. will release weekly Unemployment Claims. New Home Sales statistics will also be published today. Tomorrow the U.S. publishes its Preliminary GDP data and many investors will be keen to see the outcome. There have been whispers that the Federal Reserve is worried about a double dip recession and tomorrow’s results will be important. The overhang from worries about raising energy costs not only concern investors regarding the American economy, but globally and any price spikes from Crude Oil will have negative effects.

The EUR and GBP both gained on Wednesday, but if you are looking for pure fundamental reasons they are lacking. There is an obvious debate that is still flaring regarding the state of the European financial crisis and the management of the growth prospects from the U.K. and this is being compared to the outlook for the States. The EUR has gotten stronger the past month and half due to the perceived notion that the ECB may fight ‘inflation’ with increased interest rates. But it is the opinion of not only this analyst, that if the ECB were to attempt this that the Central Bank would be taking the risk of plunging many of its smaller nations in Europe into a very vulnerable economic position – one in which they would be hard pressed to extricate themselves from. There will be little economic data from Europe or the U.K. today. Tomorrow the U.K. will publish GDP numbers. The U.K. like the U.S. has blamed recent lackluster data on bad weather that was experienced in December. The question investors will want to see answered tomorrow is if the U.K. can bounce back and show better results.

The JPY traded to the stronger side of its range again on Thursday playing out an old song, the JPY becomes stronger when fear grips Asian investors. The Asian markets have all declined the past couple of days mirroring the negative trading from Wall Street. The caution has largely come from the Libyan situation. The AUD also traded slightly stronger on Thursday and it did this with Gold nearing its highs. The AUD has had a long correlation with the price of Gold. However with the markets in such a state of flux because of the fragile nature of investors globally, divergence may not be far behind.

The broad markets are clearly watching the Libyan situation and its affect on the price of Crude Oil. There will be a lot of important data tomorrow from the U.S. with the GDP numbers. The question is what would happen if this report turns in lackluster result and mixes with the existing nervous sentiment. Next week jobless numbers will come from the States which is another major hurdle that will have to be jumped. The unemployment situation in the States remains problematic and the government blamed bad weather for a lack of hiring last month. What will politicians excuses be this time if the numbers fail to meet ‘good’ expectations?

Equities have declined the past few days and the downside has additional room to traverse if negative sentiment stays abundant. The markets are volatile and swift, and the currencies have reflected this. The USD has been put to a test in recent trading and it should be watched carefully if investors need to try and find safe haven options.

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