Consolidation But For How Long?

Consolidated trading was loud and clear on Wednesday as the currencies, equities, and many of the commodities stood in place compared to their rather swift moves from the past week. The USD continued to find itself on the weaker side of its range versus the EUR, the GBP, and JPY. The question that traders should be asking themselves this morning is if range trading will continue or if break outs are about to occur. With that said volumes in the equity markets continue to be rather light compared to annual norms. Data yesterday proved that not all is well as Retail Sales and Industrial Production numbers from the States proved negative, and Unemployment figures from the U.K. were poor. The Nationwide Consumer Confidence reading will come from the U.K. today.

U.S. President Obama delivered a speech on the Federal Budget on Wednesday and his words are getting a mixed review at best from analysts. Wall Street is unlikely to react to Obama’s speech since they have heard most of the rhetoric before. Investors may pay attention to statements from the IMF saying banking remains under capitalized, and from a German official saying that it is likely that Greece will eventually have to restructure its debt obligations. Having entered spring investors are left with a balancing act, weighing risk appetite against risk adverse notions.

The USD continues to be at the mercy of those who are wagering against it. The Federal Reserve is scheduled to meet in a couple of weeks and its statement at that time will come under immense scrutiny. Investors will want to know if the Fed plans on expanding its quantitative easing into the summer. Up until now the Fed has said that they do not have that intention. Also it will prove to be interesting to see if dissenting FOMC members can get a more strongly worded statement about inflation concerns. If those two things take place it could prove bullish for the USD midterm.

The JPY continued to be stable to strong on Wednesday and this has come as rather bleak warnings about the future of the Japanese economy have been broadcast. The nuclear radiation saga as much as it can be wished away continues to make unfortunate news and its threat cannot be short changed. Export companies continue to face the prospect of energy shortages in order to produce their goods. And the total cost of infrastructure expenditures looks brutal. The JPY has been strong since the outbreak of the financial crisis in 2008 and the question many are asking are what the implications are for the JPY long term. Exports are likely to be weaker in the coming months and calendar year and the Japanese government is likely to need plenty of its own money to finance rebuilding efforts. Thus the JPY may in fact have reason to stay relatively strong in the coming months with the prospect that it will have to be weakened in the future. Its interest rate is also likely to stay very low for the foreseeable future as Japan is forced to look inward.

Gold and Crude Oil both stabilized on Wednesday, this two days after the storm caused by Goldman Sachs. Supplies of Crude Oil seem aplenty and this was proven by the U.S. Crude Oil Inventories data yesterday. However, many developments continue to come from the Middle East. It is important to note that Saudi Arabia appears to be quite stable. Thus the price of Crude Oil remains open for speculative plays depending on economic outlook and political analysis. Gold as of this morning’s writing is around 1462.00 USD an ounce.

The AUD has climbed back to near record highs and it has done this as Gold has shown some stability the past two days after facing downward pressure. The AUD remains one of the strongest currencies and is likely to continue to find backers based on its interest rate and the notion that physical resources remain highly valued.

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