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A General Unease In The Air

U.S. investors were given a day to rest on Monday in lieu of the Independence Day celebrations. The break from the markets may have been welcomed by many who have felt rather beleaguered the past week or so depending on their particular positions. The USD traded in range yesterday, which was to be expected considering that there was light volume taking into account the absence of traders. Clearly there was no data from the States yesterday, but that will change today with the publication of the ISM Non Manufacturing PMI. The estimated result for the reading is 55.1, which would below the previous outcome of 55.4. This report will be the last bit of major economic data from the U.S. until Thursday’s weekly Unemployment Claims. Coming into today’s trading session investors cannot be faulted for being cautious.
The USD has traded at the weaker side of its strong trend versus the EUR and GBP recently. The question is whether this is merely a short term range in a market that could eventually see the greenback get stronger. The Non Farm Employment Change numbers proved largely disappointing on Friday before the holiday weekend and underscored that the U.S. economy faces hurdles. The lack of strong job creation and a housing sector which remains challenging are two vital road signs that a strong recovery remains more of a hope than a reality. Wall Street has languished for a couple of months and going into this week’s trading is likely to be tested further. This leaves the USD in a precarious position in which it may continue to find favor among investors simply because they do not believe there are many other avenues that exist in which they can properly invest. In other words the ‘promise’ that the USD is a safe haven may continue to prove tempting in the current market environment.

ECB President Jean Claude Trichet has made his voice heard the past few days as he has tried to paint the EUR picture with bright brushstrokes. The EUR has enjoyed more stability the past week of trading and has actually turned in gains against the USD. Trichet has basically talked about his belief that the European Union will not suffer a double dip recession and that its growth outlook remains positive because of the austerity measures being taken across the continent. However, it must be pointed out that standing on the other side of the investment aisle remains a staunch and loud crowd that is not exactly pleased with mere words. Investors are basically asking where emergency money will be generated from if it is needed in order to not only bail out nations having problems with Sovereign Debt obligations, but also for private banks which may find themselves without proper liquidity. There will be no major economic data from Europe today, but the talking point about the hovering financial crisis in the E.U. will certainly remain critical. Criteria for European banks undergoing ‘stress tests’ remains a crucial point and the manner in which public officials make their pronouncements will continue to affect trading sentiment. The EUR remains a risk appetite battleground.

Under the auspice of strong austerity measures and the promise of more to come from the ruling government coalition, the GBP has found the ability to gain against the USD. This does not mean that all obstacles have been overcome – far from it – but the approach taken thus far by the government has been enough to calm investors. However, the U.K. is still very much in the midst of a less than promising economic whirlwind. Yesterday the Services PMI was released and turned in a reading of 54.4, which was below the estimate of 55.1. The Nationwide Consumer Confidence publication is listed as being tentatively on the schedule for today and it carries an anticipated mark of 64, which would be less the previous outcome of 65. Sterling finds itself trading at the higher reaches of what has been a weak trend versus the USD. Going into today’s session traders will have an opportunity to test its range as sentiment remains a fragile avenue.

The JPY is establishing a strong safe haven trend and is at seven month highs against the USD. Asian bourses have largely continued their negative turn as Japanese equities have struggled. Poor news coming from the China property market may also be causing risk adverse trading in the JPY. Gold has sunk the past few sessions and is trading near the low end of its ranges around 1208.00 USD per ounce.

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