The Fed & Quantitative Easing

The EUR continued its surge on Tuesday highlighting that Monday’s brief decline may have only been a profit taking mode. The fact that the ECB is maintaining a strong inflation stance compared to the Federal Reserve and Bank of England have essentially helped the EUR gain. As pointed out, numerous pitfalls may be awaiting the EUR, but for the time being until proven otherwise the Single Currency has proven stellar. The IMF made it known yesterday that it believes Portugal will need over 100 billion in aid over the next calendar year. The German ZEW Economic Sentiment reading was also published and showed that the German public is growing sour as it produced a mark of 7.6 compared to the estimated outcome of 11.7. But through both of these seemingly poor indicators the EUR kept pace and by the end of the day finished near the highest parts of its range.

Today the U.S. will release Retail Sales reports and a gain of 0.6% is forecasted for the broad numbers. Investors will watch this number to see if U.S. consumers are showing any signs of life. The question is what type of impact good economic news will have on the Greenback, taking into consideration that the Fed continues its quantitative easing policy. If economic news from the States can maintain an improved outlook, there are indications that the Federal Reserve will not put another round of quantitative easing on the table in the summer. Some economists are ringing warning sirens about the high costs of energy and its dire effects. On Friday the U.S. will issue the Empire State Manufacturing Index and Preliminary Consumer Sentiment marks from the University of Michigan.

While international developments continue to roil the broad markets it appears that investors may be put into the position where they will have to take into account fundamental data sooner rather than later. The knock on effect from the Goldman Sachs warning about ‘high’ commodity prices was enough to keep prices soft in the Grains and left Gold standing in place. The question is where demand is actually coming from within the physical resource framework. China certainly provides plenty of the buying, but the question is what would happen if the global economy were to take another slide backwards due to high energy costs.

Equity markets were negative predominantly on Tuesday and plenty of this had to do with the developing saga in Japan. Going into today’s trading sessions it is possible that some of this news has once again been digested. Wall Street has turned in a couple of lackluster performances and attention will be given to its returns today.

The GBP has shown that it may have left the protective nest of the EUR now that the BoE is officially not paying the same amount of heed to its inflation mandate as the ECB. The Sterling has remained in the stronger parts of its range against the USD, but it has not gained with significant force against the Greenback, this in stark contrast to the results that the EUR has seen against the USD. Employment data will come from the U.K. today, but the crux of the matter will be sentiment that exists surrounding the outlook of the BoE and how it will battle lagging growth and challenging inflation should it continue. The GBP presents an interesting opportunity for those who believe that it may face some downside pressure.

The JPY consolidated on Tuesday after gaining early in the day after the rather troubling radiation news from the government. Asian markets are still transfixed on the Japanese crisis and traders must be ready for sudden bursts of volatility. The Japanese government issued a downgrade for their economic outlook earlier today as concerns continue to mount about the hurdles Japan will face. The AUD has come off of its highs, but has found some stability. AUD traders will anxiously watch the price of Gold also today. The precious metal is trading at 1458.00 USD as of this writing.

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