Markets look to be investigating the up side once again as numbers from the US continue to improve. There is still a cautious feeling in most markets with the Dax and FTSE still pretty much in the middle of the recent range while the Dow and S&P both put in a very strong session.
Today sees the Non Farm Payroll data release at 13.30 and most traders will try to be flat before the dreaded moment. In reality figures such as these tend, in the first place, to be almost randomly better or worse than expected and then the reaction of the markets themselves often defies analysis. Many times a bad number has resulted in a rally and a good number a fall.
Aside from this event this afternoon dealers will be watching the FTSE for signs of a break above 5200. As mentioned earlier this week the FTSE is showing early signs of possibly forming a head and shoulders pattern and a move towards 5200 from 5000, where we were mid week, would be needed to form the second shoulder. This morning we are calling the FTSE at 5145 in pre-market action about 20 up on yesterday’s close. As mentioned earlier the FTSE seems to be a bit nervy, being dragged kicking and screaming higher by the US markets. This is slightly worrying in that if there is a slowdown in momentum in the US it may translate into weakness over on this side of the Pond. We can see the same situation in the Nikkei where the big rally of the last couple of days out west has translated into virtually nothing in the Far East. Aside from this the highs yesterday in the FTSE peaked at almost exactly the support (turned resistance) level of 5160/5190 which dominated much of September and October
Manufacturing data yesterday was not very encouraging and RBS’ and BA’s numbers this morning are also a tad worrying so the early call higher may well prove to be a bit misplaced.
Currency markets are turning a bit dollar unfriendly once more with the Euro regaining the 1.4860 level. The euro had been showing signs of weakness last week but this now seems to be in the past as the currency regains the front foot. The better the numbers from the US, the weaker the dollar becomes which seems to fly in the face of common sense but perhaps dealers are concentrating on the fact that the US Trade Balance will get deteriorate once growth returns and imports from China bounce back. This said the Eur/Usd seems uncomfortable above 1.49 having had a couple of shots at it after yesterday’s storming productivity and Unit Labour Costs releases.
Rumours of the death of Sterling continue to be exaggerated and, while the UK economy does appear to be on a very slow boat compared to Europe and the US, there does seem to be a base forming versus the Euro below 1.1000. Unfortunately while extinction is over done the fact is that the Pound is still very poorly indeed and the moves lower still appear to have more strength than the rebounds for the moment though the direction is favoring the upside and with the GBP/EUR now at 1.1175 resistance seems to be at 1.1215 and support between 1.1030 and 1.1060. A break above 1.1215 would give bulls hope for a move towards 1.14 and possibly the 1.18 high of summer.
Oil remains wedded to 80 dollars and the comments of earlier this week (and last) are still pertinent. Traders are looking to sell any moves above 81 dollars (with stops above 82) and to buy anything approaching 77 with stops below 76.50. The overall momentum to the upside does still stand and the hammering at 77 last week failed to make much headway at all. Bears seem to be the more wary at the moment so it might be wise for dealers to avoid being too aggressive to the downside.
Gold continues to grind higher …. But the buying remains investor rather than consumer based. With limited supply the pressure should always be easier to apply to the upside but if this were the only argument then precious metals prices should never really fall (!). The market is not particularly overbought at the moment so there is still good room for manoeuvre to the upside unfortunately the same can be said for the down. At $1093 we are in uncharted territory and with inflation remaining weak, interest rates likely to stay low, the dollar showing no real signs of recovery, banks still looking a bit weak and fears over the strength of the rebound in world growth all the factors affecting Gold to the upside linger on.