Market trading ranges are getting tighter and tighter at the moment with the FTSE bashing around between 5120 and 5185 (approximately). In fact the index has retraced this range no fewer than nine times in the last four trading sessions.

This morning does not look much different with dealers buying up to 5190 in early action from pre market levels of close to 5140 only for pressure to start to fade and sellers to emerge once again. The move this morning was prompted by the European markets which are climbing on rumours of yet another deal over the Greek crisis.

The problems for the EC have been well posted now and no matter what the political masters come up with it will almost certainly be fragile in the extreme. If a populist party in the north campaigns on the platform of no bail out for the south and wins….. then the whole edifice could fall apart. Not only this but Greece, and Spain, are going to be asked (forced) into making stringent demands of their citizens. Demands that look pretty reasonable to the North (retirement age, public sector pay cuts) but will almost certainly doom the political parties that propose them.

Trading has been very strong from our clients over the last few weeks as volatility appeared to be re-entering the markets but last week seems to have put a solid kybosh on this surge of spirits. We can hope that the various crises brewing across the globe from budgetary (Europe) to currency (China) and on to trade imbalances and possible trade restraints (China again) will add a bit of spice to proceedings but in reality we can almost be assured that a solution to all these problems will be cobbled together as all parties involved have too much to lose if things get out of hand.

This may mean that the rest of 2010 sinks into a very boring controlled trading environment which (if true) would prove to be very remunerative for day traders.

As mentioned the FTSE is currently trading at the top of its recent trading range at 5180 likewise the Dow at 10130. The dax is still struggling to make much headway but at 5530 is still at the bullish end of the current spectrum rather than the bearish.

In the currency markets the Euro continues to flirt with the lows underneath 1.3600. The situation for the currency does not look particularly rosy at the moment with (on the one hand) a bail out of the PIGS causing a devaluation of the whole currency through the massive effect of throwing vast amounts of good money after bad and (on the other hand) the more drastic variant of allowing the Greeks to sink thus risking contagion that might cause multiple sovereign defaults. To be fair, as there is no remit for the ECB to come to the aid of any one country, the default of Greece et al may not in the long run harm the currency quite as much as a never ending blank cheque. Unfortunately most of the debt is owned by financial institutions across the globe (pension funds, insurance funds, banks, sovereign funds etc) the sudden failure and default of all this debt may well cause yet another financial crisis. The various combinations of whatever decision is finally made will live with the EU for possibly decades to come.

In the absence of the US markets due to ‘Presidents’ Day’ it would be stretching things to suggest that much might happen in today’s session but stranger things have happened. In general if there is a break out in European trading, missing out the Americans, markets have an uncanny knack of reversing the move in subsequent sessions so there may be an opportunity for contra traders at the close this evening.

Gold bounced off the 1076 support again on Friday and has rebounded up to the current price of 1096. There is some resistance from 1098 up to 1104 which may put a lid on activity for the moment but a break of this would encourage the bulls to attempt another go at 1125 and higher. Unfortunately for the longs even though we have confirmed the support at 1076 there is still the fact that the long term moving averages are starting to turn neutral for the first time in many years. The weekly 20 versus 50 time slot charts are still very far apart (historically) and a contraction of these is really needed to get the bull move going once again (i.e. we are still overbought).

Oil is having a very peaceful start to the week having given up on the plus $75 level last week but also rejected sub 72.50 as well. There appears little to go for in the short term and Inventories releases on Wednesday/Thursday may be required to get us moving. In the meantime the price action remains random within the ranges.