The markets were initially unsettled in early North American trade on Thursday after ECB President Trichet failed to make any mention of additional monetary policy measures to alleviate some of the stress on the Eurozone economy resulting from Greece. In addition, traders were not comforted by the fact that the ECB President decided to accept Greek junk as collateral, which seemed to be in direct contradiction to what the central bank had said in the past.
The wave of panic
was then seen escalating into the North American afternoon, after a number of US stocks traded down to $0 on an apparent glitch, which resulted in a massive panic and sell off in the DJIA of nearly 1000 points
. Heavy selling in the major currencies and buying in the USD and Yen
transpired, with commodities also getting hit hard, with the exception of gold
, which managed to find strong bids on its safe haven appeal.
The markets have since managed to recover quite a bit, but it remains to be seen whether or not the risk aversion will continue into Friday trade. Many had discounted the possibility of a double dip recession scenario, while others did not believe that things were as bad outside of the United States. However, it now appears that this is exactly what is happening. Eurozone officials will need to come up with a more cohesive and unified strategy to re-infuse a sense of confidence into the markets. Otherwise, we could continue see traders bet against any favorable outcome and push the markets lower until proven wrong. This is the type of price action we saw when the US financial sector went into a tailspin, resulting in the collapse of some major financial institutions.
Some other developments that have affected price action on Friday include; comments from Japanese PM Hatoyama
that he is concerned with the moves in the market and the government should act as needed to prevent such moves, suggesting that an intervention in Usd/Jpy can not be ruled out;
comments from Australian Treasurer Swan
that the Greece situation is manageable and the Australian economy and finances are in terrific shape; and news that the G7 FinMins will discuss the topic of Greece in a conference call today.
Finally, the results of the UK election
are now almost complete and the threat of a hung parliament
still looms. At this point, it looks as though the Conservatives will be the largest party, but will fail to secure the necessary seats for a majority. For now it is a wait and see game, but any outcome which fails to produce a clear winner, could invariably expose the Pound to some relative weakness.
Looking ahead, Swiss unemployment
(4.1% expected) is due at 6:45GMT, followed by Swiss retail sales
(2.8% expected) at 7:15GMT. UK PPI
(0.8% expected) is then due at 8:30GMT, with German industrial production
(1.5% expected) capping things off at 10:00GMT, ahead of the all important US unemployment data
due in early North American trade. US equity
futures have been attempting to recover, while oil
is also higher and gold
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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