Will it won't it break through its near term resistance level?
We’re talking about the FTSE of course which is on the brink of failing to break above the 5400 level and beyond on the seventh attempt at trying. The recent strength that followed the Merkozy announcement that they had agreed on a way forward to deal with the eurozone debt crisis has now stumbled at this brick wall and since we’ve traded sideways. With the delay of the next scheduled meeting and a lack of further announcements regarding what exactly the plan is or has been drawn up, investor’s enthusiasm for the deal is in danger of running out of steam.
So far this morning we’ve had Chinese CPI data which has come in less than expected and this is welcome as it indicates that their tough stance on inflation is beginning to pay off. In the past we’ve seen higher and higher inflation in China and the concern was that they were going to have to take drastic action to prevent a bubble from building. This data helps to some extent in that people will take this as a sign that no further tightening is required from the Chinese central bank.
The FTSE is flat at the moment as we end the week relatively quietly and that’s despite a ratings agency downgrade to Spain’s’ sovereign debt. The likes of S&P and Moody are working overtime at the moment downgrading bank after bank and European country after European country which reminds us of the dangerous situation that the eurozone is in. However as mentioned the overriding theme that something will be done to sort the mess out is keeping equity markets afloat and the FTSE remains just above the 5400 level at the time of writing.
On the economic data front we get US retail sales which is expected to rise and thus give maybe a little bit of happy news for the markets after so much doom and gloom recently. Soon after that is the release of the Michigan confidence with is also expected to rise a little, although last month’s rise and this month if we see one is following some big falls in previous months, but hopefully we can end the week on a high.
FX markets are largely flat this morning so for now the dollar’s recent weakness is taking a respite. The euro has made some decent gains against the greenback and but seems to have come to a halt around 1.3800. At the time of writing we’re at 1.3770 and near term support and resistance is seen at 1.3700, 1.3615, 1.3570 and 1.3830, 1.3875, 1.3950 respectively.
Sterling has had what can only be described as a rather boring time trading against the euro as GBP/EUR is pretty much flat on the year. Oscillating between 1.2 and 1.1 throughout the year it really has been the battle of the dogs with no major breakout in either direction. Until the eurozone mess is sorted out or the BOE looks set to raise interest rates again this trading range could continue for the foreseeable future. At the time of writing the pair is at 1.1440.
Gold hasn’t done much either in the past few weeks and this morning is at 1672. Considering that FX markets have seen quite a bit of dollar weakness of late it comes as a bit of a surprise not to have seen more strength in the precious metal. The bulls are finding it hard to get excited about the yellow brick after all the margin increases which led to the recent sharp correction to the downside however clients remain long on the whole hoping for a return to the dizzy heights around the 1920 area.