Columbus Day Calm!
Today is Columbus Day so banks and the bond markets are closed here in the US, which has an impact on currency trading. While the forex market is open for business, volume is bound to be light without US Bank participation and the lack of correlative effects from the bond market.
This weekend’s G-7 and IMF meetings accomplished little in the way of dealing with the brewing currency war taking place in the global economy, and China held steadfast to unwavering currency policy. It has been reported that their currency reserves may now reach $2.5 TRILLION dollars. Maybe strategic default is the best remedy to dealing with the Chinese. If the Fed just keeps printing Dollars that get transfer to Chinese coffers this is going to end badly.
Not a ton of news out there for the markets today with the holiday, but there will be some central banker talk later today and all ears are on for further clues about QE2 from the Fed.
Equity markets are open today and look slightly positive, as Fed easing hopes keep money flowing to stocks. However, there is some Dollar and yen strength.
In the forex market:
Aussie (AUD): The Aussie is mostly lower as Australian home loan figures were mixed suggesting that the RBA may be able to hold steady on rates.
Kiwi (NZD): The Kiwi is lower across the board as the Prime Minister came out and said that a higher Kiwi exchange rate was starting to cause consternation from exporters and that the government and RBNZ are being placed in a “difficult position”.
Loonie (CAD): The Loonie is also lower as Canada is on holiday today as well, and oil prices have pulled back to around 82.25.
Euro (EUR): The Euro is mostly lower as mixed industrial production reports came in from France (lower) and Italy (higher). In addition, mild Dollar strength has pushed the Euro lower from an overnight high of 1.4006. (Click chart to enlarge)
Pound (GBP): The Pound is also mixed as speculation of further monetary easing is keeping the Pound just shy of 1.60 vs. USD.
Dollar (USD): The Dollar is slightly higher after the non-productive meeting of world leaders this past weekend. There is no real event risk on tap today but perceived risk exists as various Fed speakers are set to talk today.
Yen (JPY): The Yen is showing continued strength as the trend is still intact with the Yen reaching a high of 81.37 vs. USD. A report is out that the BOJ may report downward revisions on the nation’s economic outlook. (Click chart to enlarge)
So without a lot of news today and the holiday’s in the US and Canada, the trading session should be light. Fed speakers throughout the day have the potential to move markets but this seems highly unlikely. ECB President Trichet is also set to speak later.
Stocks have been advancing in anticipation of QE2, and this may turn out to be a case of “buy the rumor, sell the news”. I can’t think of a scenario where further easing would be seen as positive, and should the Fed go down that road it could cause a serious bout of biflation—with stocks and commodities moving higher while home prices continue to drift lower.
This all comes down to lack of confidence in the economic environment which is causing businesses not to hire or expand for fear that government policy is anti-business. Meanwhile, elections are coming in the US which could change the landscape of Congress which could prevent some of the more radical ideas of the government’s role from taking place.
At least that’s the hope.
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