Price action on Wednesday has been mostly consolidative thus far, with currencies content on pausing for a breather following some intense selling on Tuesday. More concerns over the state of the global economy have emerged and seem to have shaken the confidence of many traders. Global equities have also finally begun to roll over, after a very solid performance thus far in 2012. The softer than expected Aussie GDP data overnight and earlier downgraded forecasts on China only help to reaffirm the more subdued outlook for the global economy, and we would expect to see more risk off trade over the coming sessions.

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We havent heard much about the Baltic Dry Index  recently, but since peaking in mid-October, it has absolutely collapsed.  From Investopedia.com, the BDI measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea.  The Baltic Exchange directly contacts shipping brokers to assess price levels for a given route, product to transport and time to delivery.

As shown below, the Baltic Dry Index has fallen 43% in the last month alone and 49% over the last three months.

EUR/USD: The latest break and daily close above 1.3325 ends a recent bout of multi-session consolidation and now opens the door for the next upside extension towards the 1.3600-1.3700 area over the coming days. While our broader outlook remains aggressively bearish with a downside target by 1.2000 in 2012, the 2012 correction within the broader downtrend off of the 2008 record highs is still in play, and shows potential for additional gains.

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The US Dollar may face continued selling pressure while the Euro gains amid firming risk appetite. Revised German GDP figures headline the data calendar.

German Ifo data beat expectations today, and there is still some leftover hope from the Greek debt deal. Equities in the US are higher, and that is contributing to the general risk appetite on the forex market.

For now, the 17-nation currency is seeing solid gains, and moving toward improvements. Also higher today are the UK pound and the Japanese yen. Read more…