Ben Bernanke In The Spotlight

The market returned to its ‘new normal’ on Tuesday as volatility swept into the benchmark currencies again as full volume returned. The AUD finds itself at new highs as the price of Gold continues to trade near highs. The EUR is maintaining the stronger parts of its range against the USD. And although seemingly within the higher values of its range against the Greenback, the JPY has seen some tests of its consolidation. The GBP is also continuing to keep its value. All of this has occurred as today’s FOMC monetary policy Statement and press conference wait in the wings for later today.

Equities in the U.S. found positive territory on Tuesday as quarterly earnings came in better than expected from a handful of corporations, but investors also continue to seek profits in a broad market that is perceived as nervously bullish. What that means is that investors who are seeking better returns have come back to the bourses as a place to achieve profits as they question the long term health of bonds. None of this means that over the long term that participants will continue to see equities driven skywards, but for the time being it has become apparent that stocks have found a better rhythm.

There is a wave of data on schedule today, but first and foremost in terms of significance will be the Federal Reserve’s FOMC Statement that will be issued. A mass of questions, critics, and debate await the Fed decision and press conference. Investors worldwide will be watching the events as they unfold in Washington D.C. and there can be little doubt that they will be affected by Ben Bernanke’s pronouncements later in the day. Should the U.S. stop its quantitative easing policy? Should it extend the policy and initiate a QE3? As much as the Fed and Treasury have stated that they are not attempting to weaken the USD, skeptics are pointing out that they are either ignorant or lying. In an effort to create better growth the U.S. has no doubt tried to allow money to become easier to source. The question that today’s FOMC monetary policy meeting will answer for investors worldwide is how seriously does the Fed want to curtail its spending – in other words the ‘perceived’ printing of money. If Bernanke and Company come out and make a strong statement in any direction that surprises it could set off swift trading.

Shadows do lurk that the Fed must take into consideration. Inflation via the high price of Crude Oil will do manufacturers and consumers little good. If energy prices continue to gain, it will have a definite negative effect on the global economy, because as the U.S. economy goes so do many others. As a sign of nervousness that clearly exist, the price of Gold continues to stay in record territories and as of this writing it is around 1506.00 USD. Having a role in the price of the precious metal is no doubt a fear of inflation and questions surrounding the long term health of the USD and the EUR.

Other data that will come out today include German inflation numbers, the GfK German Consumer Climate reading, the Prelim GDP from the U.K., and Core Durable Goods Orders from the States.

Among them the GDP report from the U.K. should be watched closely. The anticipated result is a gain of 0.5% and there are still many questions about the growth prospects for Britain. The Sterling has done well in recent months and it certainly has traded under a EUR centric mode. But the question is if and when the GBP will become divergent and begin to trade without the EUR as a signpost. The monetary policy of the BoE and ECB are more similar that that of the Fed, but differences of opinion are starting to be heard.

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