Having concentrated on the woes of the US last week it looks like the focus might be returning to the Euro-zone for this week. Newspapers have started to talk about the debt situation again and it would not take a great deal to start the steamroller moving once more. While many of the problems appear to have been swept under the carpet the fact is that three or four nation states have been doomed to almost permanent stagnation by their past follies. Everyone knows that the only sensible way out of the problem is for the orderly withdrawal by some countries from the Euro. Unfortunately this is more a political issue than an economic one and we are likely to see some serious destruction on money before the inevitable happens. Although, to be fair, there is now talk of a complete political and monetary union process with nation state parliaments disbanded in favour of the EU Parliament but even the most optimistic unionist probably realises that this option is at least a decade too early. In any case federal union could only really be envisioned after a period of stability not of strife.
BP is higher today on strong rumours of an Exxon/Chevron bid for the company although even our spineless US foreign policy may baulk at this one. To have the UK’s flagship company helped into destruction by the US administration only so that an American oil company can buy it on the cheap would be taking the UK’s famed impartiality on foreign takeovers just a mile or two too far.
The FTSE is reacting to the rally of last week with a small bout of profit taking this morning and is currently at 5130 off some 40 points (even with BP up 13p). As mentioned on Friday there is solid volume resistance above 5160 all the way up to the high 5200’s and also the falling bear trend line (now at around 5170) to overcome. In the current rather listless economic performance is might be asking just a bit too much for the markets to really break into this area just yet. For the bulls the key areas are actually around current levels and the 5100 mark which held us up on Friday although even a pull back to 5060 would still not worry the buyers.
Traders continue to link virtually all asset classes with a strong dollar synonymous with falling equity markets and weak Oil and vice versa.
Currencies are seeing some selling for the Euro and continued weakness in the Pound. Since reaching 1.5230 back on the 2nd July Sterling tried four/five times to break higher but all attempts were beaten off with the 1.5100-1.5230 range trading eight times in just six days. On Friday the 1.5100 support failed and we have swiftly returned to sub 1.50 levels and are currently at 1.4970. The bullish trend line in place since early June has been broken this morning (we close bang on it on Friday) and dealers will be concerned that Cable failed to print up at 1.5500, the last rally peak. If we cannot recover in the next couple of sessions markets may begin to worry about a return to bearish conditions for the Pound.
The Euro has fallen back marginally in early trading and we are now at 1.2580, unlike the pound the cross did manage a beat the previous rally high and so the pull back today can be seen in a slightly more benign light than the Pound. In fact the Euro could fall as low as 1.2320 today (unlikely) and still be in a bullish trend. Fundamentally the cross is overvalued on a purchasing parity basis and the component parts of the currency have some well signalled problems which will make a massive move higher unlikely but not of course impossible if the US data continues to disappoint.
Oil has bounced back above 75 bucks which will please the producers but bulls will be aware that the 69.50 to 71.50 dollar level is becoming increasingly important. Any close below this may well trigger some heavy liquidations. For the moment though the bulls have the game once again. 76.30 looks to be solid resistance which may trigger further buying if it can be breached but above here buyers will be looking for 78/78.50.
Gold has regained some composure but seems to have stalled at the 1208/1212 resistance levels mentioned on Friday. 1214 (or thereabouts) has been the high print in five of the last seven full sessions and while bulls are looking for a close above 1208-1212, intraday a push above 1214 may well be a trigger for a punch higher. For the bears 1195 and 1185/87 seem to be the target supports. As with the upside a breach of these may have an immediate impact. But it must be admitted that early indications are for a very quiet session (famous last words).