Global Outlook Not Strong

The Fed produced little in the way of surprises last night. Essentially Ben Bernanke highlighted what was known already. The American economy has hit a soft spot, its growth outlook has been tamed, and inflation remains a concern. The Fed said that it will stop the quantitative easing policy as planned in two weeks time, but continue a monetary policy which allows for stimulus when needed. In essence the Federal Reserve told most investors what they knew. Therefore the spotlight will turn to Europe once again in the final two days of trading this week. After the FOMC Statement and press conference the EUR started to take it on the chin and has found itself under pressure. Wall Street also finished the day on a negative bent. The long and short of it is that it is now almost official that the global economies are struggling. European and American data has pointed towards a downturn for a couple of months and it will be up to traders to react accordingly.

Gold has continued to find backers as a flight to quality remains underway. The questions surrounding ‘paper money’ are many and there can be little doubt that investors are seeking hard assets. The questions about the risks involving the European debt crisis, and if the American economy goes from soft into a legitimate recession, remains unresolved. Broad market sentiment which has been tentative the past month and half as reflected through the results of the major indexes on Wall Street and the question as of this morning is just how nervous participants will now become. The EUR/USD pair has seen a vast amount of volatility, however it has managed to stay within a known range and going into today’s session it is likely to continue to remain swift.

The U.S. will release weekly Unemployment Claims and New Home Sales numbers today and neither report is expected to produce outstanding results. Europe will publish Flash Manufacturing and Services PMI readings today from Germany and France. The PMI figures will spark interest if the numbers do not meet expectations. This because investors are anxious about the fate of the European debt crisis and if the major economies of Europe – in essence the engine for the continent – continues to show stress this may cause further unease.

The GBP continued to struggle on Wednesday and it has continued to show that it is under pressure. While the EUR has actually been able to sustain a range against the USD, the Sterling on the other hand has been rather gloomy. The MPC Meeting Minutes produced no surprises yesterday. In short the U.K. economy remains under stress. Today Mortgage Approvals via the BBA will be presented and the CBI Realized Sales results are on the schedule. Tomorrow BoE Governor Mervyn King will present the Financial Stability Report. The GBP has faced a barrage of tests the past week, but it did trade in a rather consolidated mode and was unable to show any ability to climb in value. The Sterling will face additional tests these next two days.

The JPY and AUD remain solidly within range. The JPY is near the stronger parts of its range, while the AUD is on the weaker side of its near term values. Consolidation has been part of the JPY landscape for months. The AUD however must be watched for a possible break, this because of the global economic outlook. While Gold remains strong because of safe haven trading, this morning it stands near 1546.00 USD, other physical resources via the commodities markets have shown some stress. Crude Oil has been in a very cautious mode for a while now and traders may find opportunities within Oil if global demand is perceived to have curtailed.

The Forex markets will produce volatile results these next two days. The Greek debt situation remains a thorn in the side of investors as they weigh possible implications. Last night’s FOMC Statement will not add cheer to investor sentiment either. Wall Street may continue to come under pressure too.

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