Up down, up down. The see saw action of the FTSE in the last eight sessions has led to ideal trading conditions for those intraday traders looking to enter and exit the markets swiftly. Strength late on in US markets means that we’re back above the 5600 level early doors, clawing back most of yesterday’s losses.
The headlines in the last few weeks have had more effect on the currency markets than indices and there’s where the real activity has been. Cable is dipping again testing the 1.50 level this morning and its sharp rejection of the 1.52 area where we were only yesterday confirms the negative sterling sentiment at the moment. The euro on the other hand seems to have found a floor and support has been building for the single currency around 1.35 after all the deals being brokered by the euro zone to save Greece should it be required.
The EU project is being changed fundamentally and if they do go the whole hog with their fiscal plans to provide bailouts then the political system will have to be changed with a new treaty. That will be a huge challenge especially with such hostility towards the plans building in Germany.
The focus of today is later on this evening when FOMC minutes are released at 18h15 London time. The market will hope to hear that the Fed is still looking to keep interest rates at their low levels for an “extended period”, but will also focus on their outlook for the economy which seems to be gradually improving. Whilst job creation is still under pressure, although job losses are slowing, overall confidence seems to be improving and apart from the blips in economic data caused by the adverse weather conditions on the whole manufacturing and the service sector are recovering. Mildly more hawkish language can’t be ruled out though as the first steps have already been taken to indicate that the Fed is ready to move when required after they raised the discount rate.
All the news that trickled onto the FX new wires was sterling negative yesterday. Not only did house prices show a mediocre rise but the elephant in the room stomped its feet even harder as the likelihood of a hung parliament increased and if that wasn’t enough Moody’s threw their weight around by reiterating the threat of a downgrade to the UK’s credit rating. It didn’t take long for cable to head back below 1.51 as once again an attempt at regaining momentum against the dollar was short lived. There are still plenty of sterling bears out there who believe that this consolidation around the 1.50 mark is just a respite before the next big move down where targets are as low as 1.4460 and then 1.4080.
The only thing that seems to be possibly in favour of sterling at the moment is similar to what happened with the US dollar last year whereby sentiment is so sterling negative now that the majority of people who want to be short are now. This could lead to a substantial bear squeeze and we could even test 1.56, but one gets the feeling that any moves to the upside for sterling will not lead to a change in the overall trend.
Gold held up well in the circumstances after the dollar made ground. The dollar negative rhetoric from China meant gold prices remained supported, but the precious metal has been hovering around 1100 for a while now, flirting with a test of support levels, so another move to the downside can’t be ruled out.
The risk aversion of yesterday meant oil was hit quite hard. Nymex dipped back below $79. The continued failure at prices above $80 doesn’t bode well for crude prices and Nymex continues to look like it’s forming a large “head and shoulders” pattern, often considered to be a bearish pattern. If the breaks are put on growth from the emerging economies then the Western economies will not be able to take up the slack and pressure for lower oil prices will only augment.