I write today’s blog from the confines of my home office as I am snowed in New York City. The two feet of snow that have accrued in my yard is nothing compared to the un-plowed three feet that has buried my car somewhere along my block. This is indicative of what is going on in the financial center of the world—not much.
However while we were celebrating Christmas over the weekend, the Chinese decided to take that moment to “surprise” the market with a 25 bp rate hike. While Chinese inflation is certainly no secret, the timing of their announcement was dubious to say the least.
So markets have sold off in anticipation of a Chinese slowdown, with Japan the only apparent beneficiary at this point. This week is largely devoid of news heading into New Year’s Eve so expect volumes to be extremely light. This can induce major volatility; though it’s more likely we’ll see range-bound action.
There are many markets closed today due bank holiday’s (Boxing Day) which have also contributed to lower volume
In the forex market:
Aussie (AUD): The Aussie is higher across the board despite markets being closed for Boxing Day. There is no news on tap for the Aussie this week so expect it to trade on risk themes.
Kiwi (NZD): The Kiwi is trading exactly like the Aussie and for the same reasons. Expect the two antipodean currencies to trade inversely to the Yen this week.
Loonie (CAD): No news on tap for Canada so expect the Loonie to trade with oil this week.
Euro (EUR): The Euro is trading higher across the board as well being driven by the fundamentals and Dollar weakness. French GDP data is due out tomorrow, followed by German CPI data on Wednesday which could be market movers.
Pound (GBP): The Pound is weaker across the board on the observance of Boxing Day as housing price data came in lower than expected. With austerity measure set to kick in, the BOE is hoping that will suffice to contain inflation which could put pressure on the Pound.
Dollar (USD): The Dollar is mixed today ahead of tomorrow’s consumer confidence and home price figures. Pending home sales are due out on Thursday.
Yen (JPY): The Yen is lower across the board as the Nikkei finished higher. The inverse correlation of the Yen to its stock market could be a driver of yen weakness going forward as Japan is seen as a beneficiary of any potential Chinese slowdown. There is a lot of data due out later tonight, including: employment data, CPI, and industrial production data.
Light volume days can provide plenty of action for experienced forex traders. But you should be aware that low volume can cause more rapid moves as volatility picks up.
While most market participants are likely done for the year and there doesn’t appear to be any earth-shattering economic data due out this week, you never know when something can “sneak up” and throw the market a curve ball.
So keep the trading to the short to medium term, until more identifiable patterns emerge for the global economy going into 2011.
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