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A Nervous Confidence Game

The USD made a strong start on Monday and then allowed the EUR and GBP to bounce back from their lows. Powering to new highs the USD started to find some resistance as the day developed and began to range trade. Wall Street began the day on a slightly positive note, but was not able to sustain its gains and market uncertainty took its toll by the end of the trading session as the major indexes suffered. There was no economic data from the U.S. yesterday, but Ben Bernanke did make an appearance in the evening and said he believes the American economy remains on the path of recovery, but he cautioned that it would not feel strong until the unemployment numbers improve. Bernanke went onto say that the U.S. has the capability of avoiding a double dip recession. Today will remain quiet for government data and it will only be on Thursday with the weekly Unemployment Claims and on Friday with the Retail statistics, that investors will have numbers to really bite into.

Until the U.S. releases formidable data, investors will be left to work off of existing sentiment and news which is being generated from the corporate front and the European Sovereign Debt saga. A bad start on Monday for Wall Street usually does not bode well for equities and certainly will not provide any level of comfort for investors going into today’s trading. The USD continues to find itself well within the strongest parts of its range against the EUR and GBP. The Greenback has also made a potent move against the AUD as of late. Commodity prices – excluding Gold – continue to show that they are under pressure and this highlights that demand for resources remains lackluster. In essence the broad market place continues to be a chess board that matches long term thinking versus short term strategic safe haven moves. Investors have serious questions about structural fiscal policy and how this will affect the prospects for a recovery. The USD is likely to find itself within a range trading mode today.

The EUR traded to new lows early on Monday but was able to bounce back and push itself at least into stronger parts of its intraday ranges. The EUR found some stability as Hungarian officials stepped forward and said that they had essentially been ‘misunderstood’ regarding the depths of its financial concerns. The Hungarian financial minister pointed out the country believes they can manage their fiscal environment without further need of assistance and maintain its stated budget. The E.U. is also holding talks in order to formulate its debt rescue plan with a ‘super fund’ that would back nations who face a monetary crisis. The question that investors are asking more than anything is if the EUR has found its fair value and if enough of its ‘premium’ has now been priced out of the Single Currency due to the Sovereign Debt issues. Fed Chairman Ben Bernanke gave the EUR his own backing last night, and said he believes the E.U. will act in a coordinated fashion and the EUR will remain a viable currency. German Industrial Production figures will be brought today, but investors may pay as much attention to strikes going on in Spain as these economic numbers. The EUR remains a currency with plenty of questions and risk sentiment will hold sway again today.

The Sterling started off Monday on a weaker foot but it did find some balance and managed to climb from its lower depths. The EUR centric storm clouds persist for the GBP, but there is also U.K. economic data that takes precedent from time to time, even in the midst of a risk adverse outlook. The British government yesterday began to announce austerity measures in order to make its bottom line more stable and this includes large public sector spending cuts. The BRCS Retail Sales Monitor was published yesterday and managed a climb of 0.8%, not huge by any measure, but at least a gain. Today the Nationwide Consumer Confidence reading is on the calendar and the number expected calls for a slight improvement over the previous report. Tomorrow Trade Balance statistics will be brought forth and on Thursday the BoE will get into the act. The Sterling may find itself in a range today that could prove opportunistic and catch the attention of traders who have risk appetite.

The JPY and USD traded in a consolidated motion as some of the risk adverse fervor lessened and the Asian bourses actually turned in slight gains on their own going into the European trading session on Tuesday. Gold climbed and now finds itself above 1240.00 USD, perhaps signaling that a flight to quality remains a priority in these nervous markets.

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