US, Europe and Japan will keep driving market force, OANDA says
Persistent volatility in gold and commodities as investors look for a safe haven asset class, says OANDA’s Director of Currency Analysis and Research, Dean Popplewell.
Despite the UK’s low trade deficit numbers in May continuing to replicate the UK’s poor industrial performance in 2012, the UK governments plan to shift economic focus away from financial services and consumer spending, appears to be paying off. Oil exports in June grew 27.7% compared to the month of May- the largest increase in a dozen years- leading analysts to claim that the sector is gaining momentum with strong repercussions for the UK economy during the second half of 2013.
Across the Channel, the pace of German recovery continues to be at risk of contagion from financial, social, and political instability in Greece, Spain, Italy, and France. Despite being the Eurozone’s economic backbone, the German economy is unlikely to see a dramatic improvement whilst Eurozone unemployment figures remain high.
With policy makers taking action to strengthen the global economic recovery narrative, all eyes will be on key indicators. The Bank of Japan has made inflation a goal of the Abe administration so every Consumer Price Index release this year will be watched with anticipation. In Europe, ECB President Mario Draghi and BoE Governor Mark Carney have taken heed from BoJ Governor Kuroda committing to keep interest rates low, also reassuring the markets that stimulus will continue to be provided in 2013.
In the US, all eyes will be on the monthly Non-Farm Payroll report following the Fed’s decision to target unemployment as the trigger for tapering its $85 billion a month quantitative easing. Comments from the Fed have been rather ambiguous and have done little to manage investor over exuberance so key US indicators and US Dollar movements will direct the markets and other currencies for the latter half of the year.
Gold has been negatively correlated with the stock market and physical demand for precious metals has plummeted. These previously thought safe assets have been dropped without hesitation and the lack of a safe haven asset class will lend to continued volatility in gold and other commodities. Investors have looked to cash as shelter from the storm with the slowdown in China, inconsistent US recovery and the European financial crisis have all strengthened the US Dollar versus commodities in general.
Emerging market currencies are beginning to reverse their slide against the dollar. Changes in monetary policy along, continued dollar weakness as a result of QE, and consistent pressure on the US equity market may make trading exotic currencies more attractive.
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