FX Outlook

Many investors consider gold to be the ultimate "safe haven" investment. Sure enough, following the collapse of Lehman Brothers in September 2008, and through all the thick and thin since then (certainly more thick than thin), gold has delivered enviable returns...and, with much desired low volatility.

After weeks of negotiations it looks as if some temporary resolution to the Greek debt was found and the rating agencies seem to be onboard. The restructuring and rolling out of the debt will not be defined as a default, providing Greece access to another EUR 70 billion which should enable debt payments to be made.

The U.S. dollar's importance as a reserve currency has been declining for more than a decade. The highest percentage, 70.9 percent, was reached in 1999 as compared to the 2010 level of 61.4 percent. The value of the dollar, as measured by the Dollar Index (DXY), has declined over the same period.

I find it amazing how a country of just over 7.5 million people with the geographical size of New Jersey has to defend itself on so many fronts. Israel is surrounded by its sworn enemies. Under Israeli law Yemen, Syria, Saudi Arabia and Iraq are considered enemy countries.

Euroland sovereign risk issues with Greece, which have severely cooled global investor appetite for risk-related positions. Since the end of April, the S&P has slid 7.2 percent percent from this year's high, now trading at 12.7 times forecasted 2011 earnings, its lowest multiple in almost a year.

A year ago this month, the RMB cross border trade settlement scheme was expanded to 20 Mainland Chinese provinces and cities. Mainland Designated Enterprise (MDE) exporters in these provinces were allowed to settle trade transactions in RMB with any part of the world, while Chinese importers had no restrictions in paying RMB to overseas vendor.

Volatility in the currency markets this year has been high. The major currencies have fluctuated widely, racing in one direction, then turning, and racing in the other. All currencies have fluctuated similarly, that is, except the currency of our friendly neighbor north of the border.

In our daily updates we often talk of the markets switching in a very polarized fashion from risk on (having more risk appetite) to risk off (suffering from risk aversion).

Over the past few months we have witnessed the euro soar higher. The 17-nation currency had appreciated from last year's low of $1.1850 in June and rose near 1.50 on May 4, the strongest since December 2009.

As we push through into the second quarter of 2011, China-related financial headlines appear on what seems like a daily basis. The country’s economy continues to expand despite the uncertain and fragile global recovery, but elevated inflation pressures remain the primary focus of the Chinese government.