In The Wink Of An Eye

Volatility came back into the broad markets in the wink of an eye on Wednesday. The markets maintained a steady stance for most of the day, but as the American session began to get underway in earnest the commodity and Forex markets both turned swift. For the second time in about one week the price of Gold saw a quick and sudden reversal with downward pressure. The precious metal as of this morning is trading around 1495.00 USD per ounce. Crude Oil was also taken lower dropping below 100.00 USD a barrel on Wednesday. As a sign that the prices of physical commodities have caused widespread angst, the CEO of Starbucks Coffee yesterday blamed speculators for the high price of coffee. There has been a far reaching debate for sometime regarding the prices of industrial commodities as they have trended upwards. Some have said that the prices have been going up because of increased demand particularly from China and other Asian spheres, and others have argued that growth numbers even with China factored into the equation have not been enough to cause such volatility – meaning that commodity values have been affected by speculation. It is clear that some investors have sought physicals not only as a hedge against inflation, but as a profit making enterprise while other asset classes have been stagnant.

The equity markets in the U.S. declined yesterday, the major indexes on Wall Street continue to show that trading is tentative. While equities have in fact done well this year it has constantly been pointed out that volumes in the stock markets has remained thin. The U.S. released Trade Balance numbers Wednesday and they were below expectations. Crude Oil Inventories data were also published, showing that supplies are plentiful in the States. Today the U.S. will release Retail Sales figures and the estimate is calling for a gain of 0.5% with the broad number. Also weekly Unemployment Claims will be reported and the expectation is 430k. The jobless numbers last week were bad regarding weekly Unemployment Claims, but they were actually better regarding the Non Farm outcome, thus investors will be paying slightly more attention today than usual. The USD has seen volatile trading for nearly a week and a half now. Its momentum has been positive the past few sessions, but this has come in large measure because there are so many questions surrounding the EUR. Risk aversion appears to be growing and traders will use commodities and equities as additional barometers today.

The EUR slid further yesterday, this after regaining some footing the day before. There is a torrent of opinion coming forth regarding the Sovereign Debt situation in Europe and Greece in particular. The simple facts as known now point to a new aid package for Greece so they can meet their current obligations. However the problem for Greece and Europe is about what happens after this package is paid. It could come to pass that Greece will be asked to make further austerity measures and this could certainly cause unrest within their nation, which could leave politicians cornered when having to make very tough decisions. The ECB Monthly Bulletin will be released today, but the crux of sentiment for the EUR will center on Greece and the opinions about its economic prospects. What some investors fear is the possibility of contagion should Greece falter within the European Union. The EUR is likely to face more short term tests.

The GBP traded well on Wednesday after the BoE essentially stated that its interest rates are being kept low because it believes that inflation will stabilize and actually decrease next year. Taking almost the same tone as its counterpart in the U.S., the Federal Reserve, the U.K. is trying to put a brave face on an economic situation that remains challenging. The GBP once again showed signs of divergence yesterday from the EUR. The possibility of the Sterling breaking free of a EUR centric mode should be watched.

The JPY actually lost a little bit of ground to the USD on Wednesday, but it was a small value. The JPY remains solidly within a consolidated track. The AUD did lose ground as commodity prices declined, and the Australian currency should be watched closely as the physical resource markets trade nervously.

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