Collinson FX Market Commentary: August 28, 2012 - Buyers on sidelines

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Collinson FX market Commentary: August 28, 2012

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Markets moved sideways with no major economic data releases to provide direction. The key factor in markets is the extremely low volume even considering summer trading. The confidence in equities is at historical lows as the consumer remains on the sidelines. The low volumes have still not effected the moves up as the NASDAQ trades at 12 year highs but these have been fueled by fiscal policy and the flood of cash awash in the markets.

When the liquidity is withdrawn from the economy, that will be the test and the current volumes should serve as a warning. In Europe, markets await further news on the debt/deficit crises and developments surrounding Greece. A temporary secession from the single currency is the latest rumour and jells with the chronological map of a year end departure.

It is never likely to return but more likely to serve as a precedence for other failed states. The EUR traded around 1.2500 waiting for some moves in market sentiment. In the US markets await Jackson Hole and the appearance of Ben Bernanke. It is at this venue he announced QE two years ago!

The Dallas Fed's Manufacturing Activity report dropped 1.6 cementing weakness in the manufacturing sector. Politically, the Republicans meet for the Convention in Florida as Hurricane Isaac unsettles the Gulf region. Commodities drifted lower as global demand slumps and risk appetite stalls. The AUD fell below 1.0400 and looks vulnerable to global weakness.

The KIWI also drifted below 0.8100 with little local economic news to provide direction.

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Collinson FX market Commentary: August 27, 2012

Co-ordinated endorsements for Central Bank action had the desired effect on equity markets with a rally to close the week. The ECB announced the prospect of Bond-Buying to target bands for yields to restrict the cost of rising debt. This will effect markets and drive interest rates lower, short term, although the funding of this will rely on printing Euro $. This is inflationary and has the effect of destroying wealth of citizens to bankroll the fundamentally flawed and bankrupt nations.

Merkel has reiterated the need for Greece to fulfill commitments under the bailout clauses but has appeared with Samaras in Berlin to show support. Bernanke, coincidentally, also endorsed further QE action promising delivery of future dope to the addict. It is unlikely that he will act prior to the November Presidential election for fear of Political bias and the ECB is restricted by legal restraints and unity amongst members.

The EUR is trading around the 1.2500 mark and lack of Central Bank action will undermine confidence but action will undermine the EUR. Damned if you do.....!? Markets are very wary of the USD and the EUR as is witnessed by the cross rates. Central Bankers will gather this coming week in Jackson Hole, Wyoming, providing furtile ground for jawboning and markets will be determined by participants. In the US, Durable Goods orders increased by 4.2% buoyed by strong airplane orders thus supporting improved market sentiment.

The rally in equity markets failed to improve the prices of commodites as monetary stimulus does not improve global demand! This is the problem with double dip recession hitting the European market. The AUD drifted lower to trade around 1.0400 and is looking extremely vulnerable to increasingly weaker global markets.

The KIWI has reacted relatively well with soft commodities faring better and the KIWI holding above 0.8100. On to Wyoming!


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