Markets are flirting with all time highs in the UK as the US drags everyone ever higher. The Dow has pushed above previous peaks but the S&P, FTSE and Dax all remain below the Mid October levels.
As mentioned yesterday days with little in the way of information have a habit of trading in the direction of the current trend and the grind higher throughout the session rather bore this out. This morning we are seeing a bit of profit taking in the indices before the equity markets open in earnest and the FTSE whilst called some 10 points higher at 5250 is actually about 20 lower than the 21.00 futures close last night.
Kraft have come in with a bid miles below expectations (rather backing up our analysis late last month that talk of an better bid was well off the mark) and in the absence of any competitor bidder they were not exactly encouraged into a higher price. Analysts sometimes get way ahead of themselves when trying to generate speculative price tags on takeover targets. Kraft are sitting in the role of the only bid in an open auction (rather like putting up your hand at a dinner auction), why should they outbid their own highest offer just yet? Share holders are now left with the unpalatable thought that the whole thing will fizzle out (a.k.a. the Sainsbury debacle a few years ago) and the shares will slump back below 600p. Yes, there is hope that another suitor will emerge or that Kraft will up their offer but the big players will not want their bluff called at the high of the markets (outside of Cadbury). Kraft may well just win out at the current price as nobody will like the alternative.
Gold managed to rally above 1100 yesterday taking the weakness in the dollar as its reason. One of our most profitable clients actually opened a short at 1111.0 (just about the all time high) and is happily sitting on this as I write. The price has slipped back down to 1098 in early action as a bit of dollar buying drifts back into the game (and probably a bit of profit taking as well). This having been said selling Gold has proved to be an expensive mistake for the last four months as, aside from minor corrections, the price has slowly ground higher through the whole period. Not only this but since breaking above the critical $985 level back in September and then repeated failing to get back below it the omens have started to favour yet another spike higher. In an era of concern over the value of assets deemed strong just a few years ago gold holds its age old allure. Short term support is at 1097 and 1085 and resistance at 1105 and (naturally) 1111 the all time high.
Oil also put in a great day rising up to the magnetic level of 80 buck (yet again) before losing strength later in the session. We have commented many times on the 76.50 to 82.00 trading range and the failure of Nymex on Monday, Tuesday and Friday to break below the 76.50 level and on Wednesday and Thursday to challenge much above 81.00 rather emphasised this. We now also have a falling trendline at around 80.45 that might cap rallies for the time being. The strength in the equity markets and weakness in the dollar normally translates into rising Oil prices but, although we did have a good rally yesterday, it seems that dealers are less confident than in times past. The failure to break above 80 dollars yesterday may be worrying the dollar bulls a bit as all the normal impetus required seemed to be in place. If the dollar starts to strengthen (unlikely as it might seem) we may find that dealers are pressuring the support levels again rather than the resistances.
Currency markets went on a dollar hunting expedition yesterday. Hunting out weak longs and killing them off ruthlessly. The Euro managed to breach the 1.50 level for the first time in a few weeks and Europhiles will be hoping that the recent slight weakness has now been over come. As mentioned in previous comments the similarity of the Eur/Usd chart to the equity indices charts since the start of the year has been uncanny as dollar weakness seems to translate into equity strength across the globe. We are becoming used to an ever falling Greenback but as with everything we must beware over confidence. The Euro bloc, fighting to emerge from recession, is not too happy about the ever rising Euro and may decide that a bit of intervention is required. We are obviously not at this point yet as the ECB did nothing when we were up at 1.5050 in October but the effects on Euroland of a cross above1.5500 were plain to see in mid 2008. Support seems to be at 1.4965 and resistance obviously just above 1.50 at 1.5025 and 1.5050.
For sterling the markets appear to be having a bit of a game after rallying almost 250 pips yesterday we have given up 200 of them since the high at 10am yesterday and are back at 1.6650 once again. The break out above 1.6740 looks like having as much success as the previous attempt to the upside in Jul/Aug or the push lower in Sep/Oct. The general trading range of 1.5950 to 1.6675 (roughly) still holds its power and we have been stuck in it for five and a half months now. Traders who were too quick to get in on the breakout yesterday (selling at 1.67 and higher may have suffered in the sharp push up to the 1.6840 high) but those with enough powder in their pockets should have been able to ride out the storm. In truth the Cable cross has been one of the most exciting of the past few months as (although we have been stuck in the aforementioned trading range) daily price action has been quite volatile.