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Robert Zoellick, head of the World Bank, warned that we were entering a “new danger zone.”

“The financial crisis in Europe has become a sovereign debt crisis, with serious implications for the monetary union, banks, and competitiveness of some countries,” Mr Zoellick said at a conference in Beijing.

“The United States must address the issues of debt, spending, tax reform to boost private sector growth and a stalled trade policy,” Mr Zoellick added. “The world economy is entering a new danger zone this autumn.”

He also encouraged China to speed up currency reform in order to help global economy.

1. Resurgence of a risk appetite:  The August job report increased the fear for the 2nd U.S. recession.
2. Bernanke Boost:
3. 10-year differential to come back
4. The United States dollar funding appeal
5. IMM positioning suggests traders are loading on shorting the USD

Looks like the financial markets will be volatile tomorrow during and after Bernanke’s speech.  It’s probably a good idea to stay out of the markets.  Huge swings tend to hit the stop loss orders unexpectedly and turn profitable trades into losses.  Might as well stay on the sideline and enjoy a long summer weekend.

While many analysts believe Bernanke will announce a third round of quantitative easing QE3 to help stimulate the US economy from its current stagnation, others say this option is increasingly unlikely due to the potential negative side effects of a new QE3 policy.  These analysts argue that the most prudent option would be either an expansion of QE2 policies or simply an extension of the status quo which may in fact yield more positive results if given more time.

Risk manager at Easy-Forex, Markos Solomou, disagreed with this assessment, saying that “if Bernanke does not signal another round of quantitative easing we expect to see greater risk aversion in the market, which may also lead to a fall in the stock market and a strengthening US dollar.  However, it will also signal possibly the beginning of a prolonged weak economy or even a double-dip recession.  We may even see gold price drop on the back of a strong dollar.

”Whether Friday’s speech leads to a rise in the dollar or a further deterioration in global confidence in the US economy, one thing is certain – no matter what Bernanke says, there will be a definite change in the currency markets after the speech.

 

 

via Jackson Hole: How Will Forex Markets React to Bernanke’s Speech | ForexNewsNow.com | Realtime Forex Trading News.

 

Just last week, “the experts” were all coming out and issuing warnings about the “second recession” in the U.S.  Stocks were falling like a rock, and so was the Euro.

And now, all of a sudden, the storm has passed and the sun is shining.  Sky is the limit.

I’d say one must proceed with caution.  The financial markets are spookier than ever.

“In what was one of the most volatile weeks on Wall Street since traders and speculators first gathered under the old buttonwood tree, economic data actually showed improvements in the economy that diminish the odds of recession,” wrote analysts at Wells Fargo regarding market activity during last week.

 

 

via Forex Flash: Recession risks fading – Wells Fargo – NASDAQ.com.

Japans intervention in the currency markets is unlikely to stem the appreciating yen and is largely politically motivated, Japans former vice minister for finance Eisuke Sakakibara, or “Mr. Yen” as he is widely known, told CNBC on Friday.

Japanese officials have reportedly already spent $51 billion to weaken the yen.  Sakakibara said policymakers will now wait for the U.S. employment data due on Friday and take further action if the number is disappointing.  ”It is quite possible they will continue to intervene next week.  You have to watch what they will do on Monday.”

via Mr Yen: Forex Intervention Wont Work – CNBC.