In the wink of an eye the broad markets have shifted again, but have they really? While the media explains yesterday’s sudden downturn on ‘renewed’ concerns about Europe, smart investors know better. Everyone has been concerned about Europe for a long time even optimists who believe the E.U. will find a solution to their collective problems largely because there appears to be no other choice except chaos. Meaning that the decline in the EUR/USD on Thursday – while we believed it might happen – was likely more about psychology and quantifiable transactions that needed to be completed than emerging new fears.

Broad markets operate largely on confidence. All participants involved in the financial markets must have the belief that they are going to function properly. Even ‘bears’ need to believe someone will still be around to payout the money that they have made when assets have declined in their favor. In other words the EUR/USD decline while we believe long-term makes sense because in our opinion the E.U. will not be able to overcome its problems without a great deal of pain, in the short-term is more about day to day affairs between large banks making transactions for their clients via supply and demand.

Data from Europe continues to be nothing but negative, the French Industrial Production reading was 0.0% compared to the expected gain of 0.4%, but again – no one should be surprised at this juncture. Europe is in a recession and it will get worse before it gets better. Italian bond yields reflect the problems as the nation finds itself having to pay increasingly higher costs when it ‘borrows’ money.

Gold as of this writing is near 1612.00 USD which still looks slightly high when compared to the value the EUR has lost against the Greenback in the past 24 hours. Crude Oil is around 92.00 USD a barrel which is a lower value than it was yesterday. Going into the weekend Crude Oil still appears expensive.

The U.S. will not release much in the way of data today, but the Federal Budget Balance will be published for those that need something to read in order to put themselves to sleep at night. In the meantime Wall Street will have to face yet another day of rather fragile sentiment and try to find something positive to hang their hat on, in fairness it should be pointed out that while the Dow Jones struggled a bit the S&P and NASDAQ indexes both managed to show gains. But today is another day…..

News from Asia was not glowing either yesterday, China has had to admit once again that its export growth is slowing and little by little the reality of weak consumerism globally is starting to have a big effect on the Chinese economy. About half a year ago many economists advocated the theory that China would be the lynchpin that would preclude a global recession because its economy was so strong, that appears to no longer be the case.

The GBP did relatively well against the USD on Thursday and it should be remembered that an interesting trade would be to consider selling a EUR/GBP position. The AUD did lose ground against the USD yesterday and we remain a believer that the Greenback has some value it might add against the AUD. Have a good weekend everyone.