The dollar continues to crumble as dealers ponder the musings of both Bernanke and Greenspan who seem intent on seeing a double dip behind every corner. Investors should be slightly weary though as there is a small whiff of ‘deliberate devaluation’ going on at the moment. In the same way that the European Central banks and Politicians were not too concerned by the falls of the Euro earlier this year, as there is a persistent belief that weaker currencies make for easier growth, the US administration appears to be engineering weaker sentiment on the dollar. Of course on this basis of analysis the Italy, Greece and Spain should have been the strongest countries in Europe, pre-merger!
Shorts in the currency market continue to be squeezed horribly as each new high creates more and more forced buyers. At some point of course the elastic band will snap back and many dealers are trying to pick this level. Unfortunately for them this is having the opposite effect as currently they are just joining in the pressure to move higher.
As has been the case for quite some time now the general markets have been linked to Dollar valuations (or maybe the other way round). As the Dollar falls so the equity markets rally as does Oil and the other consumable Commodities. We commented last week that the Equity markets looked, on a return basis over Cash or Bonds, to be very good value and even though we have rallied a bit since then this analysis still holds good. Of course if only everything were as simple as this we would all be millionaires. For all of the bullishness swirling around the markets there are still quite a few brick bats that we have to avoid and unfortunately the UK and Europe are standing in the way of most of them.
As mentioned Cable and the Euro continue to probe the highs with 1.5960 already in the bag for Sterling and 1.3240 for the Monopoly money. Every time we pull back our clients start to build shorts again only for another rally to bash them out of positions. Strong resistance in Sterling is actually just above current prices at 1.5975/1.5995 but with the magic number of 1.60 beckoning it would be a brave man who stood in the way of such a surging market. The Euro has solid resistance just above here as well from 1.3260/1.3280 and then there is good volume resistance virtually all the way up from this point to the mid 1.30’s from earlier this year when we were battling to move lower (rather than higher).
Indices are giving up some of the ground gained yesterday as a bit of profit taking takes effect but this has seemingly already run its course and buyers are drifting in again. The Dow finally pushed above 10600 after all the abortive moves last week and investors will be hoping that some follow through will be in evidence through the course of this week. Pull backs since the start of July have been weakening but as we have seen time and again this year sentiment can turn on a moments notice and we are still miles away from the highs of April. 10705/10725 is resistance above us and 10580/90 is support. The FTSE is similarly a long way from earlier highs (almost 500 points) even though the situation now appears no weaker or stronger than it did then. Although the target must be north of the 5800 mark the nameless fears that continue to assail us on a regular basis are unlikely to just disappear. Dealers are likely to continue cautiously optimistic with the odd sudden fall out.
Gold is the only clear asset that seems uncertain about direction. Yesterday saw an attempt to clear into the bear range in early action swiftly followed by a US inspired attempt to rally in the old 1186/1214 range. Both attempts were defeated and we eventually settled almost unchanged at around 1182 where we continue to sit this morning. Technically we failed to get back above the weekly bullish trend line which was breached last week and so the bulls will be rather more worried just at the moment than the Bears but as mentioned many times in past comments this runs into the almost continual one way bias of investors (both professional and retail) who continue to buy the Yellow Metal as if it was going out of fashion. 1174/76 is good support as is 1155/58 on the upside 1184/86 and 1190/92 are the barriers to progress.