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WEEKLY MARKET MOVERS PART 2 COMING WEEK’S DRIVERS, RAMIFICATIONS, LESSONS

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A trader’s strategy guide to prior week’s market movers and their lessons for the coming week for traders of all major asset classes via both traditional instruments and binary options

See Part 1 for weekly preview of likely market movers for the coming week

Visit http://globalmarkets.anyoption.com AND FIND ARTICLE BY SAME NAME UNDER THE WEEKLY TAB

US Debt Ceiling

Without doubt, the most prominent concern for those trading dollar, any asset is whether the US government can find a compromise on its budget policy and avoid a default by the Tuesday deadline.

According to the Treasury, the US will likely miss some payments come August 2nd after exhausting all of short-term facilities.

If Tuesday passes without a solution; then even if the timeline can be pushed back a few days with help from the Fed and Treasury, the loss of credibility to capital markets and credit ratings would certainly bring a quick credit rating downgrade. If the markets open Monday without an agreement, volatility could explode as investors look to retreat to safety (which could be a problem because US Treasuries and money market funds usually fill that role). If all Washington and produce is a temporary deal that just buys a few months and thus maintains the uncertainty over the final deal (like a debt ceiling increase, or a weak deficit plan); the relief will be seen for capital markets but the dollar will almost certainly tumble as its reserve prospects dim.

US Monthly Non-Farms Payrolls, Unemployment,  And Related Preceding Reports

This is the second most likely major market mover among the known scheduled events. Along with the actual Friday reports we include the related reports (ISM Mfg/Non-Mfg PMI, ADP jobs reports, etc) that come earlier in the week and provide clues and feed speculation (and thus market movement) about climactic Friday report.

Expectations should be low given the unexpectedly weak 18,000 reading from June, the exceptionally weak 0.1 percent increase in personal consumption and the 2Q GDP figures and building rumors of QE3. Is a third quantitative easing program any more probable now than it was the day after its expiration?  Yes, though the logic behind this expectation is questionable given the failure of QE 2. As we covered in Part 1, increasing liquidity and keeping rates low is not likely to have an impact when individuals and business are cutting debt and spending, and when banks are less willing to lend and there are fewer creditworthy borrowers.

EU Debt Crisis Developments, ECB Rate Decision, Italian GDP

Despite the EU’s aggressive program to stabilize the region with a second bailout program for Greece, lower rates and longer maturities on rescue funds, the added ability of the EFSF to recapitalize banks as well as purchase government bonds on the secondary market), the plan had a critical flaw –  forcing losses on the bondholders.

While this may indeed have played well with German voters, it has scared away the very GIIPS bond buyers that were needed to bring down GIIPS bond yields because now markets had to factor in greater risk of loss and thus demand higher bond yields, the exact opposite of what was needed to save the GIIPS from default. Thus the plan has utterly backfired, as we warned weeks ago that it would, for reasons cited in Part 1.

Further downgrades are an ongoing threat – especially after Spain was put on review by Moody’s this past Friday. With markets thirsty for data on whether troubles are spreading to the EU core, the Italian 2Q GDP figures taken on a prominence they usually don’t have.

The ECB has a rate decision and statement, which will indicate whether it will exacerbate GIIPS debt woes by raising rates. Trichet recently omitted his “strong vigilance” wording, so it’s expected he’ll keep rates steady for now.

Earnings

Now moving into its fourth week, the importance of earnings recedes going forward because already about a third of firms have reported and the tone is mostly set. In addition to the fact that the above issues and a typically packed beginning of month economic calendar will make it extra hard for all but the most wildly surprising major earnings announcements to have much impact. The major announcements this week include:

Monday: PG

Tuesday: PFE

Thursday: AIG, KFT

Calendar Events

Top Events Not Mentioned Above Include:

BOE MEETING

We expect little from the Bank of England given its consistently loose monetary policy stance. Yet, no change is a development in its own right. And, when we consider the 0.7 % y/y pace of growth the economy reported earlier this week; no change can be interpreted as economic support and further reason to move away from the sterling.

AUSTRALIAN RBA DECISION

In their last meeting, the Reserve Bank of Australia indicated rates would stay steady for a while. On the other hand, they did say that the future was contingent upon inflation pressures. This past week, headline Q2 CPI rose at a hot 3.6 % pace while the ‘core’ reading accelerated to a 2.7 % clip. So, while there may be no hike this time around; there is a good chance of a change to future intentions that may be telegraphed at the press conference. This would compound the AUD’s recent strength given the markets’ sudden new appreciation for the AUD and NZD as true safe-haven currencies, due to Australia and New Zealand’s relatively low debt and insulation from the troubles of the US and EU

NEW ZEALAND QUARTERLY JOBS REPORTS

Through the end of this past week, RBNZ Governor Alan Bollard downplayed the chance for rate hikes beyond a return of the 50 bps that was cut in March and risk appetite tumbled. Despite this h, the New Zealand dollar charged to a fresh record high against the greenback. We could say that is a reflection of greenback weakness; but the kiwi similarly rallied against the AUD.  Like the AUD, the NZD is suddenly seen as a safe haven currency, which has been useful given the amount of risk aversion building due to US and EU deficit troubles. Unlike most nations, New Zealand only offers quarterly jobs reports, so given their relative infrequency these can be one of the few New Zealand reports that can be market moving.

Other Calendar Events Worth Noting

Monday

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DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING DECISIONS LIES SOLELY WITH THE READER. IF WE REALLY KNEW WHAT WOULD HAPPEN, WE WOULDN’T BE TELLING YOU FOR FREE, NOW WOULD WE? 



 
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