The Day Before The Storm

The U.S. released its FOMC Meeting Minutes report on Tuesday and while it says the economy is making strides and has a stable to good outlook, it did express concern about inflation. This is interesting because only the day before Ben Bernanke, the Fed Chairman, said he believes inflation will be in better control by the end of the year. It is perhaps not contradictory that these two thoughts have been shared, but it does show that certain members of the FOMC, namely Federal Reserve district Presidents, are finding room to point out possible hazards ahead. The USD lost ground to the EUR and GBP yesterday. The JPY lost value to the USD. The AUD maintained a strong pace. And the commodity markets provided another reminder that some investors remain nervous and speculative, this as Gold climbed in record range and Crude Oil sustained its price. Gold as of this writing is at 1454.00 USD an ounce.

Europe produced lackluster Retail Sales data on Tuesday with an outcome of minus -0.1% compared to the expected gain of 0.1%. The U.S. turned in a disappointing ISM Non Manufacturing PMI outcome of 57.3 in contrast to the anticipated reading of 59.8. Showing once again that consumers are not coming out in force in Europe, and that the important Services sector in the U.S. remains weak. The U.K. did produce a better than expected Services PMI reports with a result of 57.1. This fundamental releases however were unlikely the motive for the USD trading weaker against both the EUR and GBP. Tomorrow’s Central Bank decisions from the ECB and BoE are looming on the horizon. Investors are certainly positioning themselves for what will be a day of fireworks on Thursday in the FX markets.

The U.K. will release its Manufacturing Production numbers today. Europe will publish its Final GDP outcome and Germany will present its Factory Orders. The U.S. will see Crude Oil Inventories. From this group of reports the European GDP may be the one that is paid the most attention to taking into consideration that it is expected to show a gain of 0.3%. If the number for some reason should be stronger or weaker it will raise the eyebrows of investors who stand on guard for tomorrow’s rate decision from the ECB and have been debating the merits of such a move.

The JPY has continued to trend weaker against the USD and other majors the past week. The JPY should be watched by traders with the knowledge that it has a history of movements that find momentum. The JPY is at the weakest parts of its range against the Greenback and if it continues to lose steam versus the USD it is not likely to make the Japanese government too unhappy. The AUD continues to find backers as the price of Commodities also have found a renewed groundswell of support. Gold and Grains are both traversing higher on a diverse base of news.

Global investors should continue to monitor the equity markets which have turned cautious, even in the United States this week. Many optimists have pointed to better days ahead for the U.S. economy, but it remains to be seen if this will translate into facts on the ground – meaning greater consumer confidence, better jobless numbers, and a stable housing market. The U.S. congress currently is debating the Federal Budget and a showdown is looming between Republicans and Democrats over spending as they also keep in mind that the election for the White House is a year and a half away. The Japan crisis continues to produce news also and though things appear stabilized, investors remain attentive. The Libyan and Middle East developments are also finding an international audience which is wondering about secure deliveries of Crude Oil.

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