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Forex Market Outlook 10/21/11

By Mike Conlon, on Oct 21, 2011

The market has been range-bound headed into the weekend, but man, those ranges are pretty big! I was surprised as I thought we’d see the ranges tighten up but that hasn’t been the case. Yesterday, the markets made huge moves as various news trickled out regarding the Euro debt crisis.

It is times like these when I tend to be more cautious, as it is difficult to know when news may hit or what its impact may be. Yesterday, the markets were selling off as risk aversion picked up throughout the early US session, only to completely reverse after “news” came out that the size of the rescue plan is going to be in the magnitude of $1.3 Trillion, with a “T”. That is encouraging news for the market, as in this case more is better.

But, later that day, news came out that indeed EU leaders needed more time to unveil the plan and that this weekend’s Debt Summit would not produce the resolution but rather next Wednesday will be the day that it is revealed. While this was initially seen as further stall tactics, the market is willing to give them a few extra days. They are likely close to a deal, and just need the weekend to sell it to the other members.

Though this creates another set of problems, as any dissension in the ranks could put the markets on edge. It should be no surprise though that they moved the decision, falling back more in line with what Merkozy originally proposed and not the G-20 timeline.

There’s not a ton of economic data out this morning, with German IFO survey figures coming in better than expected and the UK posting better than expected public finances on lower borrowing.

The big news of the morning came from Canada, where CPI data came in slightly hotter than expected. Core CPI came in at 2.2% vs. an expected 2%, with the headline figure at 3.2% vs. 3.1%. The Loonie has strengthened as a result, also being buoyed higher by early risk appetite in the markets.

There is no further news on the docket for today, but there could be more “news” leaked out of the Euro debt debate so there could be volatility. Not to mention general risk aversion heading into the weekend.

**This just in: USD/JPY tanking here and making a new all-time low at 75.82! Japanese intervention talk is bound to pick up now as that 76 level was seen as the “line in the sand”. This could also be the function of USD weakness if they are more involved in the bailouts of Europe. Stay tuned to this development!

So the markets are definitely behaving crazily here, so it is always good to remember to use a hard stop and take shorter term trades. There’s no telling what may happen today or over the weekend, so I’m going to step aside and not try to be a hero over the weekend. The potential risks do not outweigh the possible rewards.


Mike Conlon,
Senior Forex Mentor