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Forex and Commodities As the EU Summit Begins

Autore: FX Empire Analyst - Barry Norman

Asian equities are trading positive after improved US releases coupled with positive western equities. Early morning, the economic releases from Japan increased more than expectation supporting gains in riskier assets. This morning finds Prime Minister Noda‘s coalition government in turmoil as Noda exhausted all of his political capital to pass the increase in consumption tax, which was necessary to save the economic and financial health of Japan. Many of his supporters voted against him, leaving his coalition government weakened and possibly without a majority.

 Investors cheered encouraging US economic data, but an EU summit later in the day could limit gains, with Euro-zone leaders seeming more divergent than ever in their views after Germany rejected calls for common Euro-zone bonds. On the eve of an EU summit that could determine the future of the Euro-zone, German Chancellor brushed aside increasingly shrill calls from Spain and Italy for emergency action to lower their soaring borrowing costs.

European Union leaders go into the two-day meeting starting today and any improvement on the same may support further gains in base metals. However, metal but prices could falter with markets tense ahead of the European summit deeply divided on how to tackle the protracted Euro-zone debt crisis and stop it spreading further. From the economic data front, the Euro-zone confidence numbers may dwindle while German unemployment may remain unchanged.

The UK GDP along with current account balance may further weigh on gains the markets in the afternoon. Later in the evening the US releases in the form of GDP, personal consumption and labor releases may continue to improve slightly and may support gains in commodities

During the European session, currencies and commodities might respond to the development of the Euro summit while later better releases from US may continue to support gains. Overall, amidst positive equities and improved economic releases from US markets are expected to continue on a positive note.

Whereas Gold has surrendered to the worries about global weakness but the seesaw movement we witnessed yesterday followed from the misjudged interpretation of the Barclays newscast. The EU meeting is not expected to reveal any sort of influential conclusion, and is now apparent after Germany showed lethargy about a tight fiscal amalgamation across the Euro zone.

Hence, it is doubtful that gold will turn upward despite the euros climbed up by 0.40% against the dollar. Expect a slight pull back in gold during the European hours amid anticipation of the Euro summit for a possible strategy outcome.

Markets are expected to react tomorrow at the close of the meetings, when an acceptable plan is not put forth. Issuance of the joint Euro bonds is under doubt after Merkel strongly commented it as a wrong way to achieve the integration while; the Spanish, Italian and French chiefs are pushing hard for the same with aim for growth. The dispute between them could therefore be proved as a headwind for the market especially after the consensus broke down to safe guard Spain and Italy while; the adding Cyprus, the fifth European nation so far could be bailed out today. All eyes will be on Monti from Italy, as he is following the same path of denial as Rajoy from Spain.


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