Markets have shifted down to the bottom of the range once again after bank stocks took a real pummelling on yet more EU regulatory ponderings.
Unfortunately for regulators they really do not get the picture, aside from creating jobs for compliance, they have never created one percentage point of growth… in fact they are famed for doing the exact opposite. Now the dead hand of governance is looking to cut off the oil of finance as well. In their desperation to appease uninformed public opinion they are risking, by delivering ever more stringent barriers to lending, future prosperity. Much as our politico’s might hate it, one of the major reasons that the West has had hegemony over the globe for the past few centuries has been because of its banking systems NOT in spite of it.
The FTSE is looking to open some 10 points to the good this morning at around the 5200 mark. Traders who have just sat back selling above 5250 and buying below 5175 for the past three weeks have made a killing as we oscillate repeatedly between the two. Dangerously we looked like breaking the medium term bull trend line in the FTSE yesterday but the late rally saw us regain the level. It is not exactly rocket science to say that 5165 is looking good support and 5275 looking a bridge too far on the upside.
The Dow also appears to have some misgivings about remain in a five big figure number. Above 10,000 has now been rejected three times in the last week or so and we start this morning at 9890, peacefully but uneasily pondering the continuation of the rally. The S&P and the Dow have the same bull trend line as the FTSE in sight but still 100 points under current prices (one of the reasons the FTSE could not follow through on the sell off). It is difficult for just one of the major western indices to make a significant move without the others following suit.
On the currency markets the Euro finally gave up the effort of trying to move above 1.5050 and in a reaction sell off fell some 200 pips down to 1.4850 before more support was found. We have commented many times over the past few weeks that the euro/dollar and euro/yen crosses were looking a tad extended on little real information. While the Euro may become a bigger reserve currency it must be mentioned that with virtually no raw material export component nor, yet, a history of safe haven status its attraction seems at the moment to be one of being less weak than all the others!
Dollar strength yesterday also had its obvious impact on Gold as the yellow metal slumped down to the bottom of the current trading range at 1040 (and actually spent a considerable period below here down to 1037). It is difficult to be too aggressive in either direction for Gold as the buying pressure is undeniable but other asset classes are also rather attractive. The pull back to the ‘support’ at 1037 (also the exact same previous lowest price since we made the move higher on the 6th October) found no keen sellers so, while we must fear a break lower, the fact that there was keen interest to buy below 1040 has given the longs fresh confidence. Clients have been buying this morning but there are a lot of stops below 1036.
Oil followed everything else down (this is becoming a feature of the current bull move in that virtually every market is following every other market). The Euro seems to be the catalyst. Strong Euro, strong markets, makes no sense I know but … what can we say. While the trend is indicating this it would be a foolish trader who ignores it! Oil is still within the 80 buck range band and while we have fallen once again we do seem to run out of selling below $78 and buying anywhere above 81.50. We are still in a bull trend but there is room to the downside as well. It remains dangerous to be short but the near 4 dollar reversal from the highs yesterday will have given sellers a bit of a boost.