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Online Forex Trading News, Anlysis, Tips, Reviews, and Videos.Europe’s woes are back to center-stage as the markets fear slowing growth and the political wrangling that is taking place over the proposed EFSF deal agreed to in July.  For starters, European PMI figures came in lower than expected across the board in Italy, France, Germany,


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Europe’s woes are back to center-stage as the markets fear slowing growth and the political wrangling that is taking place over the proposed EFSF deal agreed to in July.  For starters, European PMI figures came in lower than expected across the board in Italy, France, Germany, and the Euro zone overall.   In addition, the markets will be watching very closely a court decision in Germany that may determine the constitutionality on Germany’s participation in the bailouts, ahead of the ratification meeting at the end of the month.

But it’s not just the Euro zone that is seeing declines, as PMI figures in the UK declined the most in almost two years to a reading of 49.  However this reading matched the expectation so much of its impact has already been absorbed.  Adding to further Pound weakness is that home prices also declined by .4% and the expectation was for an increase of .4%.  This has put pressure on the Pound and is contributing to early risk aversion in the markets.

Chinese PMI also fell near 30-month lows and export orders fell for the first time in two years so an obvious slowdown in China would further add to the declining global economic growth story.  This has put a bit of pressure on both the Kiwi and Aussie, though the Aussie is benefiting from better than expected retail sales figures, posting a gain of .5% vs. a .3% gain.

The Swiss franc is also strengthening as I mentioned yesterday that the SNB “forgot” to jaw-bone the Swissie lower.  Today they have reported in-line GDP figures showing  .4% economic growth, but early risk aversion is adding to buying pressure.

Later this morning, ISM manufacturing figures will be released here in the US which are expected to show a decline from last month’s 50.9 to today’s expectation of 48.5.  The bar is set pretty low for this one so an upside surprise could help redeem the markets.  Initial jobless claims came in as expected, with the usual 409K newly unemployed.

The markets are actually creeping higher early in the US session as we are off of earlier lows.  We are starting to see a familiar pattern emerge, with risk aversion taking place in the European trading session and then that sentiment reversed in the US session, essentially leaving us near flat for the day. 

While the forex markets have been trading in expanded ranges, overall market ranges seem to be contracting.  This could change tomorrow, on the release of the Non-Farm Payrolls report.  The expectation for job gains is at 75K which is also a pretty low number, so a downward miss could cause initial risk-aversion until the markets realize that this might actually be good for the prospect of “QE3” as the Fed attempts to fulfill its dual-mandate of encouraging employment and price stability.

Should we miss to the upside, then the opposite sentiment could occur though I think that if the number is encouraging then it could help move the markets higher, however more slowly than if QE3 becomes the expectation and not the hope.

Next week will also bring the politicians back to town (yay!) and President Obama will give his jobs speech next Thursday, though the majority of America will probably be watching the start of football, as more and more people become disenchanted with the political games we are forced to endure.

So be careful trading into tomorrow’s NFP report which is always a volatile time in the markets!

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