Chart of the week: Despite declining to lowest level against the USD in a year this week, EURO is still 8% higher than June 2010.

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Get braced for (even more) volatile markets as traders pack up early

The sovereign debt crisis in Europe has created a period of uncertainty for businesses in the UK, Europe and elsewhere. The daily dose of headline news seems to lurch inexorably from one crisis to the next like a slow motion train crash. While business sentiment has been on a downward trajectory for many months investor sentiment switches from periods of pessimism to optimism on an hourly basis depending on developments in Brussels.

With asset prices increasingly correlated, whether it be oil, share prices or metals, trying to determine pricing for end products across the supply chain is becoming increasingly fraught.  Now with the end of 2011 approaching trading volumes across different classes tend to dry up resulting in increasingly volatile markets as news headlines swing prices more readily in thin markets.  The FT report this morning that in foreign exchange markets volumes have dropped off much sooner than in previous years (more use to mid-Dec being the start of the ‘thin’ period) due to uncertainty and losses incurred by recent volatile sentiment. This pattern of lower volume trading may be reflected in commodities, resulting in an even more volatile end to 2011.

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