Any traders who have been trying to short the current trend of risk taking in the broad markets including equities, commodities, and forex have likely found themselves disturbingly on the wrong side. The USD has lost significant ground to the EUR, GBP, and AUD the past couple of weeks and this has been not only a fast move but a relatively brutal one too.
The ECB and Federal Reserve have certainly won this latest battle of the ‘confidence game‘ they have been forced to participate in. The EUR has managed to fight back from early summer lows and has counter punched many analysts outlooks – including Digital Markets Advisor’s over the past three months.
The Federal Reserve equally has managed to create an atmosphere of belief among investors that it will continue to pour money into financial instruments. The equity market has reaped the rewards as the place to be while the Fed has also managed to keep the Greenback relatively weak t0 the EUR which will help spur exports from the States.
All of this however comes in the face of deteriorating economic data. Yes, we understand we are now standing on the wrong side of the broad markets and its results, but a huge amount of questions remain regarding the ability of the global economies to navigate what we believe may continue to be very tough conditions long-term.
WTI Crude Oil is standing just below 100.00 USD and Gold is around 1772.00 as of this weekend break. The precious metal has risen as the EUR has regained comparable strength to the USD. It should also be noted inflation is starting to rear its head via the costs of fuel and higher food prices as many commodities – particularly in the grains and energy – have increased.
The list goes on, China has had poor economic data and there are major concerns regarding its upcoming leadership change and President-in waiting Xi Jinping’s lack of public sightings . Coming up this week via economic reports will be Germany’s ZEW Economic Sentiment reading on Tuesday, housing sector data from the States on Wednesday, and the Philly Fed Manufacturing Index on Thursday.
Investors who have chosen the path of short-term trend following have likely found very good waters the past month. Those who have chosen to continue to be cautious are likely questioning their outlooks. And traders who have been on the wrong side of this risk taking train ride are likely looking for exit strategies if they have money left on the table.
The question that must be asked is how much of the ‘good words’ and ‘good deeds’ have been baked into the cake? The problems of the financial crisis have not been solved in Europe, the ECB has merely found a way to wallpaper over the blemishes. The unemployment concerns in the U.S. continue to grow. Debt and growth concerns for both Europe and the States are self-evident. Unrest in the Middle East seems to be on the rise again. And Asia appears to be suffering from weaker demand as their exports fall. In other words there is a long laundry list of problems. Hanging dirty laundry out for display is not considered polite, but it must be noted that many of the stains that are apparent will not vanish easily.
It will be more than interesting to see how much more this risk taking parade will continue to march down Main Street.