Japan’s GDP numbers early this morning were not up to expectations. The Nikkei index traded lower and the JPY traded slightly stronger versus the USD. The Japanese currency has been trending towards higher values since early July. Since its low water marks in May of nearly 103.20 the JPY has not been able to sustain the goal set out by the Japanese government to create a ‘known’ value. As of early this afternoon, GMT, the JPY is near 96.72 and appears to be open to more speculative positions.

Interestingly in a recently published Commitments of Traders from the Chicago Mercantile Exchange regarding the JPY, there appears to be a glaring divergence of opinion between non-commercial and commercial positions among market participants. Meaning that the volatility seen in the JPY in recent months is likely not over and that traders should expect the rollercoaster ride to continue. Japan has undergone a twenty plus year experiment in order to kickstart growth. In the coming months Prime Minister Abe, who has a strong coalition, will have to prove that he has the political backbone to put forth structural changes that are needed within the Japanese economy. The JPY stands in the middle of this storm and in order for the nation to achieve better growth the Yen will need to weaken from its current values. But can it?

Data:

There is very little economic data on the calendar today. However, tomorrow Germany will bring forth its ZEW Economic Sentiment marks and the U.K. will publish inflation statistics. The States release Retail Sales figures on Tuesday. The crux of the matter is that volumes have significantly shrank the past week as many investors have left their offices for more relaxing confines and this is effecting market conditions.

Equities:

Wall Street turned in lackluster results last week. A six-week winning streak was snapped. But there are several things to consider before traders close the book on the possibility of further gains in the equity markets this year. Summer volumes have shrunk and there is the possibility that before some investors left for holidays that they closed profitable positions in order to book known profits.

It is true that the shadow from the Federal Reserve’s monetary policy regarding quantitative easing hangs over Wall Street and the unknown avenues the Fed will take have possibly given bears the advantage in the short-term. One week of lackluster returns on the three major indexes does not constitute a tidal change though and day traders need to remain alert. Digital Markets Advisor believes the equity markets are over bought, but it hesitates to say we have seen the end of the 2013 bull run quite yet.

Commodities:

Gold has bounced back in recent trading and as of this writing is near 1325.00 USD. The precious metal withstood lows last week and has created some momentum in the last few sessions. Whether or not Gold is going to break through resistance levels around 1335.00 is a big question. And there remain many who believe that Gold is merely getting in some last gasps before it submits to another decline. The Federal Reserve’s QE policy hovers over the Gold market too. Supposedly a stronger USD because of ‘less printing’ by the Treasury under a mandate from the Fed would make Gold weaker, but traders should note that speculation remains rife for the precious metal. Commodities have seen mixed results the past week and Crude Oil (WTI) has seen a good test of it higher ranges.

FX:

Forex markets remain rather quiet as of this afternoon. The EUR, GBP, and AUD have all consolidated in early trading today. The EUR and GBP have come off of their short-term highs against the Greenback. The AUD which has done better in the past week since the interest rate cut by the RBA was made official continues to move in the higher parts of its range against the USD. Due to the lower volumes in the broad markets traders might be able to take advantage of the rather tranquil ranges that permeate the summer air if they practice patience and do not over extend leveraged positions.

Market Outlook:

China Dragon via 123RF

Again, plenty of long-term questions are waiting in the wings. The European growth parade and its proclamation of the ‘death of recession’ may be met by a large throng of doubters within the next few months as cynics point out that Greece, Spain, and Italy are not out of the woods yet. (Not to mention France in which some of its officials have started to argue that it is free of recession now). The U.S. economy still must prove that it can sustain its growth numbers and improve the unemployment and underemployment problems that lurk. China has been said to have achieved a ‘soft landing’ but can we really trust all of the data coming from the mainland? And as we started today’s column, Japan has some tall hurdles it still must clear in order to achieve its goals. In other words, enjoy these quiet days, because Digital Markets Advisor believes there is plenty of volatility around the not so distant corner.