The FTSE is recovering nicely from some of the weakness of yesterday and readers of this comment should have done well on the break of the 5160 minor support as the market went down to the level suggested at 5115 (in fact a few pips lower). This morning we have recovered all of these losses and we stand back at the levels of yesterday’s missive above 5160 once again. Obviously what was support now becomes resistance, although the top of the resistance area is at about 5170-75. the way up is probably not as easy as a short term blip to the downside proved to be and we have become used to the steady grind higher that has dominated many sessions over the last few months. If we manage to get over 5170/75 then we cannot expect much more than a further 25 pips towards the highs of Friday at 5200.

Risk-reward potential would indicate that there is probably more space below than above current price levels but trying to oppose the bull trend will have cost people quite a lot over the last month and it would be asking rather too much for dealers to place a huge amount on a bear move appearing out the mist at this moment in time. Bear traders will be looking for some concrete indications that the existing rosy view of the world economy is built on shifting sand but the longer we go, with nothing to trip us up, the further the markets will rise. It has been mentioned many times in this comment that the huge sums being spent by the state and the BOE must be going somewhere. It is not unreasonable to suggest that some of it is being invested in this equity rally. Once QE is out of the way that might be the moment to ponder the sustainability of prices at these valuations until then outright opposition will probably remain dangerous.

The dollar continues to be weak against most crosses although it has found some support in recent days versus the Yen at 90.25 and against the even weaker Pound it seems to be positively buoyant. As I write the cross versus the Euro is probing the highs for the year at 1.4750 and a break here might easily lead to a sharp shift towards the major resistance at 1.4870 to 1.4900. We have tried to instil a sense of fear over the Eur/Usd in our clients minds but most seem to be still trying to oppose the rampant Eurozone currency. At the moment we have the curious phenomena of having clients Long Sterling-dollar, Short Euro –dollar and Long Dollar-Yen leaving us with almost no net client dollar exposure but a massive Sterling-Euro and Sterling-Yen position.

Unfortunately our clients seem to have gotten into poor positions and are holding on grimly for some type of pull back.

The weakness this morning in the dollar is causing Gold and Oil to surge strongly in early action. Gold held the support through yesterdays session with many attempts to get below 993/5 all being defeated quite easily, the reaction this morning in conjunction with a helping hand from the dollar has pushed us back up to 1012 as I type. As mentioned yesterday although the market seems to find it a bit cold above the 1000 level it is also unable to break back below the support/resistance levels just below the level. In the past all attempts to hold these higher peaks have failed not just spectacularly but also quite quickly. This time there does at least seem to be something of a battle going on.

Oil bounced almost perfectly (yet again) off the rising trend line support at bang on $68.95 (November Nymex). The ability of dealers to match expectations so well would suggest that either we will bounce straight back up to the $73 level or will smash through the support to look at the 66.50 to 67 dollar region. Take your pick! If the dollar remains as weak as it has been recently then the betting will be for the former but if the economic numbers start to slip and/or the dollar finds some backing then the reverse might be the ‘banker’. Medium term, the US administration is following a very dangerous route with its undeclared weak dollar policy (mentioned many times in this comment) and so there is always the chance of a pre-emptive strike by the Fed to buy the Greenback and head off complaints from hard pressed US Bond holders (but don’t hold your breathe!).