As we approach the middle of August and watch as volumes across the broad market place languish because of summer holidays Forex has shown the tendency for cautious ranges. Friday produced a slightly weaker EUR/USD but as of trading this Monday the Single Currency has fought off of those pre-weekend lows. Data today will remain quiet but that will begin to change tomorrow with French Preliminary GDP numbers and the German ZEW Economic Sentiment reading along with broad European data such as GDP and Industrial Production. The U.S. will also see some important economic figures on Tuesday with Retail Sales and the Producer Price Index statistics.
Confidence is still a critical issue in the market place and Europe stands at the crux of this ‘minefield’. Investors must become convinced that the E.U. and the ECB are able to not only offer words of acknowledgment and encouragement but concrete and quantifiable numbers and a roadmap on how it will manage its financial crisis. While investors have reached nearly a foregone conclusion about Greece and its problems, Spain and Italy still have the ability to prove that they can be saved – but investors cannot be counted on being patient. A key to knowing private institutional and large investor sentiment will be through the Sovereign Bond yields via Spain and Italy. Also a major shadow lurking in the background will be how Spain and Italy ask for financial assistance and what effect that will have on existing confidence.
In the meantime the EUR continues to hold onto some value, but this is largely because a parade of uglys as it has widely been described continues to march in formation via the Single Currency and the Greenback. The Federal Reserve has made it apparent that they are not exactly over-confident about the current U.S. economy and its ability to continue to foster growth. The notion that the Fed is contemplating another burst of ammunition via quantitative easing is commonly held. But this is where it gets interesting, there is a major election lurking on the horizon in the United States and the Fed may hold their cards tight to their chest until the election is over. This because there is a clear difference of opinion among the candidates regarding fiscal policy and that debate will only grow louder now that Mitt Romney has nominated Paul Ryan as his Vice Presidential candidate and although an independent fiefdom the Fed is a political animal like most other government entities in Washington.
Expect to see Forex, commodities, and equities see a test of their known ranges today.