Thursday, June 16, 2011

Quick Turnaround!

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By Mike Conlon | June 15, 2011

Well that was short-lived. All of the relief from yesterday’s Chinese economic reports can basically be thrown out of the window as leaders in the Euro zone can’t seem to get there act together. In what has been become a spectacle that would make Sophocles proud, the Greek debt crisis has appeared on all stages: first starting as a drama, then becoming a tragedy, then a comedy, then back to drama, now approaching tragedy again!

Yesterday’s emergency meeting of leader failed to produce anything and the major outcome that was reported was “bickering”. EU leaders need to come up with a solution by the end of the month in order for Greece to secure an IMF payment which could be withheld if no action is taken. Germany is still insisting on measures that would constitute a default, and no resolution appears close.

It is patently clear that Germany is the obstacle in this process and while bailouts aren’t my cup of tea, if they want to save the Euro then they need to compromise. Germany stands the most to lose in this entire ordeal, so in my opinion they are negotiating from a position of weakness and not strength. Stay tuned for this one!

In the UK jobless claims came in three times higher than expected and wage growth has slowed though the unemployment rate has remained steady at 7.7%.

US CPI data is due out later this morning and is expected to vindicate Bernanke as fuel costs have come down. Yesterday’s regalia of Bernanke and the Fed may have stolen the headlines from the re-opening of “Spiderman” on Broadway as the best staged event of the day!

So the markets have started the day in risk aversion mode, with stocks and commodities lower around the globe. Lost in yesterday’s excitement over tame Chinese CPI is the fact that raised bank reserve requirements in an attempt to slow their economy.

In the forex market:

Aussie (AUD): The Aussie is higher to start the morning despite the risk aversion in the marketplace. Yield-seekers see a positive economy and the RBA honcho’s conflicting comments that inflation was more likely than not could foreshadow a possible rate hike. New dwelling starts rose 3.1% vs. an expectation of a decline of .8%. (Click chart to enlarge)


Kiwi (NZD): The Kiwi is lower across the board despite a much better reading of consumer confidence from last month. Considering that they were dealing with an earthquake last month, this was to be expected. Risk aversion and money flows are putting pressure on the Kiwi.

Loonie (CAD): The Loonie is mixed despite lower oil prices to start the morning. The fate of the Loonie lies somewhat with the US CPI data and what the market response to the release may be.

Euro (EUR): The Euro has given back all of yesterday’s gains and then some. While Euro zone industrial production figures came in better than expected, the problems with the Greek debt crisis are weighing heavily on risk in the markets. (Click chart to enlarge)


Pound (GBP): The Pound is mostly lower after jobless claims came in showing an increase of 19.6K vs. an expectation of 6.5K. While the UK economy is definitely slowing, how the avoid stagflation is anyone’s guess.

Swissie (CHF): The Swissie is mixed as its safe-haven properties are counter-balanced by the sentiment that the SNB will not raise interest rates due to recent franc strength. Declining import prices reflect Swissie strength.

Dollar (USD): The Dollar is higher across the board as risk aversion ahead of this morning’s CPI data release and specific Euro weakness are driving demand. Should inflation come in less than expected, pressure for higher rates would abate.

Yen (JPY): The Yen is surprisingly mixed this morning as well, as risk aversion has increased demand, yet not enough to unwind carry trades. With the risk coming from Europe, it appears as though money flows are driving price action. The Nikkei was actually higher last night, the only major market index to post gains.

As you can tell by now, sentiment in the marketplace can shift on a dime and there is still major risk around the globe. Some days the positives are emphasized (like yesterday), while others the negatives shine through.

The problems in Europe are too great and the Greek situation may be a microcosm of what is really taking place. Germany is playing with fire in this situation and ultimately they might end of getting burned before they drag everyone else into the fire.

While the rest of the globe has a “wait and see” attitude at this point, European leaders essentially have 2 weeks to get this figured out. So while the only fireworks expected this summer should occur on July 4th, there may be other “independence” celebrations taking place.

Of course this bound to bring about a lot of pain as well, and certain market volatility. So don’t take time away this summer, as the action may be too great to miss!

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

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