Forex Fundamental Analysis
All the world’s markets ended the week significantly lower on continuing nervousness and concerns about sovereign debt. In Europe over the course of the week, the FTSE fell 5.3% and closed at 5040.8; the Dax fell by 8.6% to close at 5480%; the CAC weakened by 6.1% to end the session at 3017.
Markets around the world are being driven lower by doubts over the debt crisis afflicting the USA and Europe – although Japan has debts which are more significant – and concerns that the anaemic global recovery is petering out. If the recovery ends, then another recession will ensue and with it demand will fall.
Japan's rate of contraction of the economy in the second quarter of the year was better than expected, coming in at a contraction of 1.3%. Further good news has now emerged in the trade surplus figure for July which came in at ¥72.5 billion ($946 million). However, as they say, the devil is in the detail.
The German economy is widely regarded as the powerhouse of Europe and had been seen to be leading the recovery in the region with (relatively) impressive growth figures which made the performance of the rest of the Eurozone look positively lack-lustre.
Figures just released for Japan’s Q2 2011 GDP are better than many analysts had predicted and are stoking optimism that the pace of the recovery in Japan is increasing. Analysts had expected to see annualised contractions of up to 2.6%, but the figure released by the Japanese Cabinet Office shows that the economy contracted by 1.3%.
After registering a record low at 9.323, the U.S. Dollar Index has rallied in 5 waves. Implications are bearish early this week, followed by the next bull leg higher. Learn more about the US Dollar and other major currencies in this comprehensive weekly Forex snapshot.
With the exception of the FTSE, all the world’s markets ended the week lower, despite a late rally, on continuing nervousness and concerns about sovereign debt. In Europe over the course of the week, the FTSE made 1.4% and closed at 5320; the Dax fell by 3.8% to close at 5997.7%; the CAC weakened by 2% to end the session at 3213.9.
China saw a year-on-year inflation rate of 6.5% for July. This increase in the annual inflation rate has occurred despite five interventions by the Chinese central bank to raise interest rates since October 2010.
One traditional safe haven is gold and regular readers to these articles will have charted the inexorable rise of gold to new highs; a trend that still has a way to go as world markets continue to be in turmoil. A second traditional safe haven is to find a currency that investors see as rock solid and convert funds to it.
Probably, the most valuable commodity in the world is not gold, crude oil or diamonds, but confidence; and it is in mighty short supply right now. Investors in the world’s stock markets fuel economic growth by providing the demand which drives a company’s growth and allows it to borrow money to expand, either through classic bank loans or by going to the market with a bond or stock issue.
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