Forex Market Outlook 11/11/11
Today is "11-11-11" and folks have been waiting a while for this as sometimes the wackiness that ensues on days like today will leave you scratching your head. But today is also Veteran's Day here in the US, so it is a bank holiday which means that we could see reduced volumes in the currency markets.
However, the rest of the world is not sleeping so we must turn our attention to what is taking place around the globe. Today is an extremely light day of news, so focus still remains on Italy and the Euro debt crisis. Global stocks are higher to start the morning.
In Italy, the upper House (Senate) has agreed to the austerity measures put forth so we are now awaiting for approval from the lower House. Should this go smoothly, then Berlusconi could step down by the end of next week. Part of the problem though is that nothing ever goes smoothly. Right now the leading candidate to replace him is Monti, who is seen as a "technocrat" and seemingly capable of handling financial matters.
In Greece, the new unity government is being voted on with Papademos as the interim leader. While there won't be a pop quiz on these names later, it should be important to note that there is a serious shift toward leaders with financial backgrounds assuming power in these countries. This is intended to instill confidence that some of these European countries can get back to fiscal sanity.
On the news front, China has increased lending to support its economy which is reflected by some risk appetite in the marketplace. Between Chinese growth and potential European stability measures, markets are looking to take back some of Wednesday's losses. Italy's austerity is a good start.
In the UK, PPI data came in lower across the board which could mean that they are finally seeing some relief form inflation. CPI data has remained elevated for some time and the BOE mantra that it would come down eventually because of austerity measures may finally be coming true. However, the recent tone at the BOE has been dovish so do rule out further QE if the economic data worsens.
Speaking of worsening economic data, there are more and more calls out there that Europe is going to slip into recession so there are increased calls for the ECB to step up in the debt crisis. The ECB so far has been refusing to be a buyer of last resort for Euro debt so that has given the market the ability to drive yields higher, as we saw the other day in Italy when their 10-year bond yield rose to over 7%. It is now back in the 6.5% range but shows that the ECB is unwilling and perhaps unable to provide better support.
Here in the US, stocks and commodities are set to open higher and today is a bank holiday so there should be lower volume in the currency markets. U of Michigan consumer confidence figures are due out later this morning but I doubt they will have a material impact. My guess is that today will be an "inside day" with little movement either way, though end-of-the-day risk aversion could crop up as fears about Europe come back into focus.
And lastly from the rumor mill, there has been some chatter that Japan had been secretly intervening in its currency vs. USD, as reflected by the price action we saw above 78. Since this has been noted, the Yen has started to appreciate a bit. Whether this is true or not is anyone's guess but it makes for good conversation.
So at this point I am still erring on the side of caution and am looking to keep my trading to the short-term unless we see a major move which I doubt will happen on a light volume day.
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