Collinson FX Market Commentary- August 27, 2012 - Central Bank action
by Collinson FX on 27 Aug 2012
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Collinson FX market Commentary: August 27, 2012
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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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