| Forex Market Outlook 10/14/11 It looks as though the European rescue plan is starting to take shape as a meeting of G-20 leaders is likely to produce a framework for the resolution. It is then likely that whatever emerges will be discussed at a meeting next week of European leaders and if that is agreed to, then we could have the final resolution by early November as promised by Merkel and Sarkozy. Some of the points of emphasis will be: what is the haircut in Greek bonds, that is, what percentage of private sector losses will be required. This is important because this may lead to further bank losses that have high exposure to sovereign debt. This leads to the second point, that the ECB needs to help re-capitalize the banks so that they can weather the potential losses. There is also talk that the IMF will step in to provide capital, and the IMF in turn will receive capital infusion from emerging markets countries like China and Brazil. So in reality, this is really more of a global collaborative effort as it doesn't look like Europe has the juice to go it alone, and world leaders understand the threat that this poses to global economic health. This comes as the ratings agency S&P looks to hasten the process by downgrading Spain's debt for the third time in three years. In addition, there was a no-confidence vote that took place in Italy, which PM Berlusconi survived. Despite all of this uncertainty and hopefulness, the markets are in risk-taking mode to start the morning, lead by last night's better than expected earnings report from Google. This has driven stocks higher, and the correlative effects of Dollar weakness have been taking place. However, the market has turned around a bit on the release of the US advance retail sales figures which were actually a lot better than expected, so this could be a case of markets not looking to be long risk ahead of the weekend. The figure reported showed a gain of 1.1% vs. an expected .7%, which is definitely a plus for the economy. So why have the markets sold off on that report? Perhaps because it dampens the possibility of further Fed easing as the economic picture improves, or maybe it's a case of "buy the rumor, sell the news". Other news from earlier today was that China's CPI data came in as expected by slightly lower than last month, posting a reading of 6.1%. If inflation begins to cool in China, then it could be a sign that the economy is slowing. Or it cold also mean that they are ready to ramp up lending again. The potential impact of the currency bill passed in the Senate here in the US to try to force China to re-value their Yuan is unknown at this time, as is the Chinese response to it. CPI data in Europe also came in as expected at 3%, though the ECB doesn't have room to move even if they wanted to go higher. The obvious focus there is on the debt crisis. The only thing else to watch this morning is the U of Michigan Confidence figure which comes out later, though I don't think it will be a game-changer. With the "Occupy Wall St." movement and gridlock in government, it is hard to imagine anyone is confident right now. However, it is times like these when it is usually best to dip your toe in the water. Being a contrarian in the marketplace is a difficult but often times rewarding position to take. If everyone is selling, someone has to be buying, right? Just some food for thought. | 
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