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Poor Data Continues From States

The USD traded in a consolidated manner on Friday against the EUR and GBP, albeit at the weaker side of its range. Divergence has taken hold within the broad markets and this has occurred as U.S. data continues to underperform, sparking genuine concern that the ‘softening’ numbers may represent a rather ugly future to come. The Consumer Sentiment reading from the University of Michigan produced an outcome of 66.5 compared to the estimate of 74.2, which was already estimated to be weaker than the previous mark. On top of this the CPI data showed that inflation simply is not much of a factor and that deflation remains the real threat. As if that weren’t enough before going into the weekend, corporate earnings from General Electric and a couple of major banks, Citigroup and Bank of America, missed expectations.

Wall Street continues to show weakness and all signs highlight that traders are in control of the marketplace as they move equities according to the whims. There will be no major economic data today, but quarterly earnings reports will keep up their steady diet and investors appear to be waiting for glimmer of hopes from guidance, but ‘good prospects’ have been in relatively short supply. The hard economic data from the States the past few weeks could be called merely a soft patch, but bears who have been underscoring a lack of improvement in the job and housing sector certainly have additional meat to bite into. Important data will start to be published tomorrow as Building Permits and Housing Starts come forth.  On Wednesday, Ben Bernanke, the Federal Reserve Chairman, will begin his biannual hearings before Congress and discuss the health of the American economy. Risk adverse trading may predominate today. The USD finds itself being tested as traders seek ‘fair value’ and for those with the stomach to participate, ranges could offer opportunity.

The EUR continued to keep pace on Friday and managed to go into the weekend with most of its gains intact after a strong performance from the days before. The EUR did move in a fairly tight range on Friday as the international equity markets were hit by declines. The fundamental data from Europe continues to be lackluster. Trade Balance numbers from the E.U. and specifically from Italy were below the estimates. There will be little in the way of releases today, except for the Current Account report from the European Union. The EUR cannot quite get away from developing news happening over the weekends. Hungary made it known that it has reached an impasse with the E.U. and IMF over loan guarantees, because they do not see eye to eye regarding austerity measures. The news from Eastern Europe underscores that the underlying weakness within the E.U. has not disappeared and that many risks remain. Questions about Sovereign Debt, austerity, and the implications on growth has become an old song, but one that should be listened to once in a while. Traders must stay cognizant of prevailing ranges and market sentiment which remains on a razor’s edge.

The Sterling traded in a sideways pattern on Friday and finished off the week holding onto most of its gains. There was little economic data from the U.K. before going into the weekend and there will little today. Tomorrow Public Sector Borrowing figures and Mortgage Approval numbers will be published. The GBP has enjoyed a few weeks in the sun and this has come on the heels of better sentiment due in no small measure to the U.K. government’s strong austerity measures. However, the question is how long can this policy can muster good ‘tidings’ for the Sterling and what the real ‘math’ will show in the midterm. Concerns persist regarding growth prospects, and like its major counterparts there seems to be no quick fix in sight. On Wednesday the BoE will release its MPC Monetary Policy Statement, but until then the GBP may find itself moving entirely under a risk appetite/ adverse scenario.

The JPY continues to pick up steam and gain versus the USD as risk adverse trading being led by investors fleeing Asian bourses builds momentum.  Trading is seldom a one way avenue, but the JPY’s strength highlights that nervous sentiment remains in a heightened state. Taking that into context, the results from the Gold market remain very interesting as the precious metal trades around 1191.00 USD this morning. Gold is on the weaker side of its range even though international equities continue to show a lack of support, this underscores that traders are in control of the market and because of that - divergence is evident.

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