Forex Market Outlook 12/1/11
Well yesterday's news did not disappoint, with the markets remaining near highs into the close. Today will most likely be an "inside day", providing neither new highs nor lows. This is to be expected with a move as big as the one we saw yesterday.
But what does this all mean? Truthfully, not much. Essentially yesterday's coordinated action makes inter-bank lending cheaper. That's it. It doesn't solve the problems of the Euro zone, nor does it change the political dynamic in the US. These are the things holding us back and markets could do a lot better if there was more political courage in the world.
But there isn't. Germany still refuses to acknowledge the tremendous benefit they've received through their Euro zone participation and are steadfast in their opposition to helping anyone that doesn't behave exactly as they do. There are big changes that need to made in Europe obviously, but the entire world economy is basically being held hostage by the European political process.
The economic data continues to come in as a mixed bag. Yesterday's perfect storm showed that there are times when economies look like they are performing well; today, not so much.
For starters, in Australia retail sales figures came in lower than expected showing a gain of .2% vs. an expected .4%. Building approvals were also lower. China's PMI manufacturing figures came in at a 2-year low, which may be part of the reason why they reduced reserve requirements yesterday.
In the Euro zone PMI manufacturing figures came in as expected but in the UK they were better than expected, which is why the Pound is tracking higher this morning.
Here in the US, initial jobless claims came in worse than expected, but the expectation was for improvement from the pretty standard 400K that has been the average for some time. Later this morning we will get ISM manufacturing figures which could reverse the mild selling we are seeing this morning.
But for now, the bigger story is the money pump into the financial system that only will serve to buy time for those that are troubled. Until solutions are found, it will be more of the same. There is still great risk in the market and it will take a tremendous effort and leap of faith for the Euro zone to solve their debt crisis.
The beginning of the "Santa Claus Rally" that we are seeing now is a welcome event, but don't get lulled into believing that things are just peachy. Yesterday's action occurred because someone, somewhere was in trouble and the threat of global market instability was too great for Central bankers to bear. And it also goes to show the power that these bankers can wield when things aren't going exactly as planned.
For example, nearly everyone is shocked that the Euro is trading at current levels despite the huge mess they are experiencing. Yet when you compare it to the US dollar and the easy money policies we have, it pales in comparison.
Yesterday was also a reminder that inflation is on the horizon. The only thing keeping us back from hyper-inflation is the fact that the US housing market continues to flounder. Case in point: I was speaking with a friend last night who confided that she was terrified of buying a home despite the fact that she and her husband have good jobs and are financially responsible people.
The uncertainty that hangs over the markets and the lack of confidence surrounding the current environment will continue to hold us back regardless of what the actual data tells us. Therefore I will continue to trade this market in the short-term, taking advantage of moves like the one that occurred yesterday.
