Indecision is the watchword at the moment as markets oscillate around a central core price.
Day traders had a nice time of it yesterday as the FTSE traded the same range over and over again and this morning those who had been caught wrong footed on the late fall in the US markets can breathe again as early pre market action takes us back up to 5085 once again.
Support at 5030/35 and down to 5000 seems to be building and the ease with which we have rejected this level several times over the last few sessions will have encouraged the bulls. While the problems over the Euro which have dominated market thinking over the last couple of weeks will no doubt continue the end game is almost certain to see the northern nations coming to the aid of the PIGS as the failure to do so would see the destruction of the EU project on which so many political careers have been fabricated. The brave move would be to be ruthless and unpopular but this is just not a likely scenario. The North will probably print more money whilst extracting some face saving promises from the south (which they probably wont keep) building up the same problem, only a bit bigger, for some indeterminate date in the future.
The build up of sovereign debt across the whole spectrum of the West is now reaching frightening levels and still no country (apart from Ireland) seems to be able to take the tough choices. If the central banks are forced to continue to print money (QE) in the face of zero growth then inflation cannot be kept at bay for ever and with many nations now flirting with 100pc debt to GDP, and higher, the cost to economies of servicing this will be critical.
The FTSE has a little spring in its step this morning as it’s back above the 5100 level being led largely by miners. The index is showing some strength after a last minute sell off in US indices last night and overnight we were calling the FTSE around 5045. Resistance in the FTSE is seen around 5115 for the very near term and then the previous support around 5150 which could prove a little more of a hurdle.
Although the Dow has dipped below the 10,000 mark, it plays such a big psychological part in the minds of US investors that it comes as no surprise to see support around these levels. Already we are calling the Dow to open 70 points better a round the 9980 mark.
Economic data is thin on the ground today with very little to note apart from US wholesale inventories at 15h00.
Despite the continued woes of the euro zone and prospects of a sovereign debt crisis the euro has held up pretty well this morning. For now 1.3600 has provided good support and resistance is expected around 1.3770 before 1.3850. Down some 5% in 2010 EUR/USD has slowly but surely been pricing in an expected disaster so those who want to get short the single currency have probably already done so. As a result a bear squeeze cannot be ruled out.
Sterling has also suffered a similar demise in particular against the dollar. Not only do the polls continue to show the likelihood of a hung parliament increasing, but the UK almost as worse off as the PIGS so any continued risk aversion will add pressure to cable. Resistance is seen around 1.5665 and then 1.5700. Focus will be on sterling tomorrow as the Bank of England release their quarterly inflation report.
Gold has found equilibrium and seems to be quite comfortable around 1070. The precious metal’s movements have been very much influenced by the dollar and risk aversion indicating how much speculative longs have been built up. Gold usually benefits when uncertainty is rife, but not this time round.