Tranquility For Now

Most of the broad markets will be closed today meaning that any trading that takes place could see a sudden burst of energy from a large position. However, until Monday afternoon when the Americans open for business volumes will be extremely thin at best and participants should be aware that it will be quiet. After Wednesday’s continued foray into volatility the currencies did manage to become almost tranquil on Thursday comparatively. The GBP did finish Thursday at the stronger sides of its range. The EUR did take a breather against the USD but rest in the stronger parts of the range. Gold continues to hover near record highs and Crude Oil prices are still pressing ahead for the time being. The AUD also finished its trading at the top part of its range before essentially positioning itself for the long holiday weekend.

With Good Friday being celebrated most markets will remains shuttered until Monday, and even then Europe will stay mostly closed until Tuesday. There will be nearly no economic data – besides Italian Retail Sales today internationally. Monday the U.S. will release New Home Sales. Yesterday the States released weekly Unemployment Claims and they proved disappointing, but with so many traders looking for the exit doors to begin their long holiday it isn’t likely that many took notice.

Next week the critical news will generate itself around the Federal Reserve’s FOMC meeting and statement. The debate continues to rage in the U.S. regarding its budget and deficit. The U.S. has been able to achieve better growth than Europe and the U.K., but questions remains about sustainability. Crude Oil prices are a concern and so are the rather weak employment numbers. The housing sector is still in a state of depression. And it is with these things in mind the Federal Reserve will have to deal with as it looks into its crystal ball. Since the financial crisis began in 2008 the Fed has been extremely aggressive trying to pump money into financial institutions and by using a ‘near zero’ interest rate policy. The question is how long this policy will be continued. The S&P basically proclaimed last week that the deficit in the United States is a long term concern. Treasury officials were quick to say that the States is in a better economic position than its counterparts, but the perception exist that the U.S. must start to curtail spending. The FOMC Statement coming on Wednesday of next week may provide investors with some insight. If the wording of the FOMC paper suggests that quantitative easing will be stopped after this current round expires it is possible the USD could see some room for better value. The trillion dollar question is what philosophy the Fed will promote in the coming months.

As a barometer of sentiment going into next week, short term traders should be aware that equities in the States continue to show strength. Global equities have not prospered as much, but there is a sense that equities have been the one investment vehicle that has the potential to deliver better than average returns, particularly compared to the bond markets among investors – true or not.

Many questions continue to plague the economic environment. Sovereign Debt concerns have not gone away and continue to shadow Europe. Greece must be watched intensely because if it chooses to restructure its debt there can be little doubt that Ireland and Portugal may find reasons to follow down their path too. Greek officials for the most part have denied the possibility of restructuring, but enough whispers continue to be heard to keep the story alive. Long term a belief does exist among many that a restructuring of debt will have to take place. What happens after that will be a crucial piece of the puzzle not only for Greece, but particularly the European banking institutions which hold most of the debt.

Traders must be aware that most markets are closed today. Some banking will take place allowing for some trading, but volumes will be thin. The Americans will return on Monday, but volumes will not return to completely normal levels until Tuesday morning.

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