Forex Market Outlook 11/8/11
Today is one of those days where there is seemingly nothing happening, with little economic data released but one major event holding the market's attention. The budget acceptance vote in Italy is now being viewed as a proxy for Berlusconi's power in Italy and the potential for political theatrics at this vote could bring about a no confidence vote for the Premier.
Essentially what is taking place today is the Italian Parliament is voting on whether to accept the budget for 2010 (last year) and while it is expected to pass, some members may abstain from the vote in an attempt to show their displeasure with Berlusconi. If this occurs and the abstention is great, then there will be pressure for a no confidence vote which could lead to his resignation. This is the ideal scenario for the market, as they would prefer to see a technocrat in office who can navigate the economy and bring Italy back to fiscal health.
However, Italian politics is such that this could be a drawn out process. It must be noted that Berlusconi has a media empire and controls several newspapers, so he has a much louder voice than most. It will be interesting to see what comes about, but recent rises in Italian bond yields may make it more expensive for the government to service its debt if the political uncertainty continues.
Things are going a lot nicer in Greece, where PM Papandreou has reportedly said his goodbyes as they are close to forming a unity government intended to enact the measures laid in the debt crisis deal. Speaking of that deal, it is expected to be operational by next month, provided these governments can get their houses in order though timelines have known be extended in Europe.
On the data front, the Aussie was lower overnight as the Australian trade surplus came in lower than expected, though it is rebounding on risk appetite this morning. Stocks and commodities are higher to start the day, though in general the currency markets have been trading in a tight range.
The British pound has also been moving higher as it benefits form money flows leaving the Euro. Both industrial and manufacturing production figures in the UK came in as or slightly better than expected which is acceptable at this point given the state of their economy. Later this morning, an unofficial GDP estimate will be released.
As soon as the Swiss franc starts to weaken on its own (see yesterday's chart of the day), the market takes notice and starts to buy it again! Consumer confidence figures came in worse than expected but the big news was a statement from the SNB that claimed that they would manipulate the currency for competitive advantages in exporting goods and services. The market has taken this to mean that there will be no further intervention, after yesterday's calls to move the peg to the Euro up to 1.25 from 1.20.
In the US not much is happening today, with some Fedspeak due out later today. This will likely produce little in the way of market reaction as it is insignificant in the grand scheme of things.
Meanwhile the debt debate here in the US continues forward and the media is grasping at the slightest indication of any news. It is times like these when the markets can become jittery, as unexpected releases could produce market movement.
Right now the currency market is trading a fairly tight range, so I prefer to keep my trades to the near-term and attempt of buy ahead of support and sell ahead of resistance, essentially trading the range. The risk at this point to putting on longer-term positions at these levels is too great, so until some clarity emerges I will stick to the shorter-term.
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