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The object is to remain in one piece so as to fight another day. This week's current market price action is not for the faint of heart. Whiplash volatility has very much been the order of the day as we complete the final trade session to end this week. Come Monday, let's hope both liquidity and volatility will be better measured as most of Europe is expected to return from their annual holidays. So far, with so much riding on the Fed's next move and economic data painting a mixed picture of the U.S. recovery, the market does not seem to have any strong convictions. Of late, investors have been very quick to get out of positions causing increased volatility.

Global sentiment remains dominated by the speculation over the timeline of the Fed's move to reduce its bond-buying program, after yesterday's U.S. initial jobless claims fell to a multi-year low and other data showed that the U.S. consumer price index rose for a third straight month last month. All along, Fed officials have been saying that they require signs of higher inflation, coupled with other indicators of a stronger U.S. economy, before they decide to reduce any part of the current $85 billion monthly bond-buying program.

Current market risk appetite has been deteriorating on the back of tapering fears heating up. Both global equities and U.S. treasury prices have come under some intense pressure as investors try to calibrate the net effect of reducing the Fed's stimulus. Yesterday's U.S. weekly jobless claims declined to +320k, the lowest level in six years. The fear of the Fed's QE tapering happening has global bond yields on the back foot, aggressively rallying. Weaker U.S. earnings reports, along with the violent scenes out of Egypt, have been hurting global stock markets.

Even signs that the eurozone is dragging itself out of recession with Q2 GDP rising 0.3% have been unable to help equities. All of this has allowed gold to reassert itself as an alternative investment vehicle to both bonds and equities. The yellow metal has rebounded just under 13% from its recent trough print at the end of June. Like a good commodity should do, the yellow metal is again supporting the commodity-sensitive currencies like the aussie and loonie to a degree.

The mighty dollar has managed to decline from its weekly highs against its major trading partners as speculation that the Fed will begin its "taper terror" reign next month. A tighter monetary policy is weighing on the demand for assets denominated in the U.S. currency. The "dominant" buck has reversed most of this weeks gain against both the EUR and JPY as stocks fall and Treasury yields touched two-year highs (U.S. 10's +2.77%). Even GBP has managed to climb to a two-month high outright after U.K. retail sales rose more than forecast this week. Over time, the combination of a strong U.S. economy and higher U.S. yields should favor the greenback. However, until the market buys into this scenario, the weaker long dollar positions will be tested.

Data from earlier this morning revealed that the eurozone current account surplus declined in June amid a narrowing of the member countries trade surplus. The surplus dropped to €16.9b after the previous months downwardly revised €19.5b. The bloc recorded a trade surplus of €11.8b in June. A tepid global demand for euro products continues to hold back export growth. The 17-member region will have to rely on their own customer base to spend and buy their way into sustainable growth. With the region's high unemployment rate, that's no mean feat.

Ahead of U.S. housing starts, building permits, consumer sentiment, and buybacks, the USD was little changed from yesterday evening's price levels against its major trading partners. Geopolitical risk is dominating the oil agenda with events in North Africa and Middle East providing solid support for crude prices. If you include the inflation pressures in the U.S., then gold prices too should want to push higher for the time being. Only when the tapering question truly takes center stage will this advance consider reversing its course.

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Source: 'Buck' Stops Here - Or Here, Or Here