Irish Debt Crisis Remains The Story

The USD kept up its momentum on Tuesday as it powered ahead against the EUR and continued a positive trend versus the other major currencies. While a host of CPI and PPI data was published in Europe and the U.S. yesterday investors remain focused on the developing story from Ireland regarding its banking and debt situation. Ireland has been told that the cash is available for the taking, but the country has thus far refused to step forward with hat in hand. Typically it would be perceived as a good thing, when a government says it doesn’t need financial backing from others, but investors are not convinced about the reasons why Ireland has refused to accept the handout. In the meantime, global equity markets have shown plenty of weakness and this was reflected by a poor day of trading on Wall Street which saw sharp declines across the board.

The saga from Europe and Ireland is sure to continue today and it should also be remembered that it is the fear of contagion – the knock on effect – on other nations that is making the debt dynamic even more volatile. Investors are being besieged by a variety of news, Ireland insisting that they do not need the money, European officials saying it must be done, and the debates as to what will eventually happen. Part of the dilemma is the conditions that Ireland would have to agree to and administer when taking a financial handout to save its banks and steady its debt situation. The storyline for investors has become a volatile cyclical web and the problems of Europe must be weighed against the problems faced by the States. Neither economic giant is enjoying robust prospects. Data from both shows that choppy days still are ahead.

Today the U.S. will release Building Permits and Housing Starts and both of these statistics are critical when judging the housing sector which remains under severe strain. The U.K. will release its Claimant Count figures and the Unemployment Rate. Europe will have a quiet day of data however all investor eyes will be glued on the continent.

Commodity prices continued to tumble on Tuesday and Gold led the downward slope as it fell to below 1340.00 USD an ounce. Part of the renewed strength in the USD has certainly had an effect on the precious metal, but it cannot be discounted that China and the perception that it is trying to tighten control over its economy has also blew another cold wind into investor perception. China has expressed plenty of concerns recently about domestic inflation and finds itself in a precarious place as it tries to balance local concerns versus its global exporting capabilities.

The JPY and AUD both remained on the weaker side of their trend versus the USD on Tuesday. The JPY move has been weeklong but it remains to be seen if this is a short term trend or the start of a real change in the JPY. It is likely that the JPY could find itself a magnate for safe haven investors if bourses continue to roil and this might dissipate the recent price action sooner rather than later. The AUD has lost ground against the USD under the haze of the decline in commodities and the emergence of the greenback in recent days. However the AUD still remains in the stronger part of its long term value against the USD, thus traders must be vigilant to sentiment and ranges.

The USD remains the currency to watch as the crisis in Europe continues to boil. The question that traders must ask themselves is how long the pendulum will stay transfixed on the European debt crisis. European officials and Ireland remain locked within discussions and the broad markets remain nervous as they watch the proceedings.

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