So, after one whole week of worry we are now out of the double dip recession worries and back into the cloudless skies of eeerrrr….not a double dip recession worry. We have commented over the last week on the overblown fears of another slowdown due to some weaker than expected data out of the US but I must admit the ‘turn on a sixpence’ performance of the indices has been a tad surprising. We are now back at 5100 for the FTSE and it is almost as if the last two weeks did not actually occur. My tongue in cheek year end target of 5250 is looking better and better by the day.
For all the happy faces around at the moment the stark fact is that there are still very significant problems out there so getting too carried away with ourselves just now would be a bit premature. Reading the game plans of every single country in the world that is experiencing budgetary problems it is apparent that they are all (to a man) factoring in significant export growth as a way out of their problems. Unfortunately we cannot all ‘export’ our way out of trouble and there will have to be some pain on the sovereign debt side at some point. Greece is obviously the prime target for this but Ireland and Spain are probably not a million miles behind. Just for now we are looking comfortable but as a happy week draws to a close it is always prudent to watch for the hidden rakes in the grass.
As mentioned the FTSE is now back up at 5100 and looking at the charts for the last three months we can see that (roughly) 5000 to 5300 has been the base camp to which we keep returning. Mid May and June saw us attempt to climb higher only for the woes of the world to hammer us back again. Unfortunately the lows continue to be lower than each previous move and the rallies failing at lower levels as well which is still a classic indicator of a bear market. We have some heavy volume areas from 5160 all the way to 5275 and the falling trend line now at 5190 which will be a barrier to moves higher but one of the real targets for investors looking for a possible indication of a return to bull conditions is for a closing print above 5285.
On the support side 5085 and 5065 look good but longs must beware a bit of end of the week profit taking as traders look to lock in positions to avoid any fears over the weekend.
Rather neatly the Dow has now comfortably regained 10000 as has the S&P with 1050, the FTSE’s 5000 and the Dax’s 6000 even though these numbers mean absolutely nothing on a yield basis they do exert a heavy influence and so their recovery cannot be completely overlooked as merely a co-incidence. If we do start to slip again we can expect a battle to retain these marks.
Currency markets continue to batter the Dollar with the Euro now pressuring 1.2700 and the Pound back up at 1.5200. The greenback experienced a considerable flight to quality during the Greece/Spain problems and much of the rally of recent weeks has been a certain unrolling of these positions. Underlying many of the fears over the currency is how much can the Southern states drag down the rest of the bloc. Germany/France/UK and Netherlands etc are a vast percentage of the EU GDP/exports etc but Italy/Spain et al do still account for some 20/25 pc of the overall. This is a hefty drag and traders forever worry about a bad apple in the barrel infecting all the others.
The Euro has now hit new recent highs regain 1.27 briefly this morning but is now slipping back down a tad. Bulls will be hoping for 1.2675 to hold good on the close tonight and, obviously bears, will be looking for the opposite. The rally (aside from one sharp move on the 1st July) has been a long slow grind higher which is a classic sign of FX market trend building. FX markets tend to move in vast longer term shifts in one direction or the other. Dollar vs Euro (or ECU) had a six year rally from ‘95 to ‘01 then six/seven year move lower up to ’08. And even within these overall moves there were six month to year long retracements. For the average day trader this does not help much but the current move is still just a bull move in a bear market. At this moment in time it has still not shifted over to a long term Euro bull market.
Gold is clinging on just under 1200 and has now bounced twice from $1186. Our clients are still very bullish and are heavy buyers on any pullbacks (however small). Bears will be worrying about a return above 1208/1212 and longs will be equally fearful of a breach of the aforementioned 1186. As we are currently trading at 1196 we are neatly poised for either direction.