Monday, 4 February 2013

Daily Market & FX Commentary – Political uncertainty in Europe


Daily FX Commentary: (Morning Report)

EUR/USD
The Euro eased further, to nearly fully retrace 1.3540/1.3710 upleg, once 1.3600 handle was lost. Initial signals of basing are seen on hourly chart, as 1.3540/30 area is seen as ideal reversal point, between 50% and 61.8% of larger 1.3413/1.3710 ascend, to keep underlying bull-trend intact. To confirm this scenario and re-focus 1.3700 zone, regain of minimum 1.3650, 61.8% of 1.3710/1.3547 decline is required. Conversely, loss of 1.3540 handle, would risk extension towards 1.3500/1.3477, next support levels.
Res: 1.3585, 1.3617, 1.3648, 1.3674
Sup: 1.3540, 1.3528, 1.3500, 1.3477
GBP/USD
Cable enters near-term corrective phase sharp slide from last Friday peak at 1.5877, found footstep at 1.5684, just ahead of more important 1.5673, 28 Jan fresh 5-month low. Current bounce is seen as further consolidation ahead of fresh leg lower, as previous recovery attempt was rejected on approach to psychological / 200 day MA resistance that keeps the upside limited for now. Upside extension through 1.5700, sees strong barrier at 1.5760, Fib 38.2% of 1.5877/1.5684 and hourly 55 day EMA, with potential break higher to prolong the consolidation and allow for possible recovery towards Fibonacci resistances at 1.5780/1.5800, 50% and 61.8% retracement. On the downside, penetration of 1.5684/73, would open fresh bear-phase and expose 1.5600.
Res: 1.5760, 1.5773, 1.5800, 1.5845
Sup: 1.5707, 1.5684, 1.5673, 1.5634
USD/JPY
Fresh extension through psychological 93.00 barrier, show bulls firmly in play for possible test of our next upside targets at 93.75, Jan 2010 high and 94.00, round-figure barrier. Daily studies continue to point higher, despite overextended conditions that so far did not generate any reversal signal. On the other side, easing towards initial support and higher base at 92.50, was triggered by overbought 1/4h studies, with further corrective dips towards 92.00 zone, Fib 38.2% of 90.73/93.17 / 4h 20 day EMA, seen not harmful for near-term bulls.
Res: 92.95, 93.17, 93.50, 93.75
Sup: 92.50, 92.28, 92.00, 91.77
USD/CHF
Corrective action from last Friday’s fresh low at 0.9020, remains capped under initial barrier at 0.9120, 31 Jan highs / Fib 38.2% of 0.9291/0.9020 descend / 20 day EMA, keeping the downside at risk. As hourly studies are losing traction and 4h indicators remain in the negative territory, not much of recovery could be expected in the near-term, as long as market stays below psychological / 50% retracement barrier at 0.9200. This keeps the downside favored for now, as loss of 0.9020/00 support are would open 0.8930, Feb 2012 low and 0.8900, psychological support, next.
Res: 0.9120, 0.9156, 0.9187, 0.9200
Sup: 0.9074, 0.9020, 0.9000, 0.8930
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Daily Market Commentary: (Evening Report)

London Markets Report

London close: Footsie drops 100 points on political uncertainty in Europe
Market Movers
  • techMARK 2,273.92 -0.73%
  • FTSE 100 6,246.84 -1.58%
  • FTSE 250 13,177.02 -0.74%
Increased political risk in the Eurozone presented a good opportunity for traders to take profits on Monday, as investors made the most of the recent surge on stock markets worldwide.
The FTSE 100 dropped 100 points today, a fall of around 1.6%. This follows the impressive 6.4% gain seen last month, the index's best January performance since 1989.
"Last night's power failure at the US Super Bowl appears to have manifested itself into European equity markets today as the sentiment that had fed the strong rally of recent weeks appears to have come to a shuddering halt," said senior market analyst Michael Hewson from CMC Markets.
"Investors are once again being spooked by political uncertainty from both Spain and Italy as both countries deal with local political difficulties that could derail ongoing and future reform programmes."
Peripheral bond yields rise on political risk
Spanish 10-year bond yields were at their highest levels of 2013 today, up 22 basis points at 5.43%, as markets digest rumours over corruption scandals at Prime Minister (PM) Mariano Rajoy's governing People's Party.
"The fear for investors is that these allegations, though denied by PM Rajoy, will prompt bouts of civil unrest and the removal of the current government which would pave the way for general elections," explained Joe Rundle, head of trading at ETX Capital.
Over in Italy, the borrowing rate on the Italian benchmark note rose 14 basis points to 4.47% as the support gains for former PM Silvio Berlusconi in the public opinion polls. With just a few weeks to go before parliamentary elections, markets are fearing a political deadlock post-election.
Meanwhile, back in London, economic data was doing its bit to dampen sentiment. Markit's UK construction purchasing managers' index (PMI) was unchanged at a six-month low of 48.7 in January. Consensus forecasts were for a small up-tick to 49.

Europe Market Report

Europe midday: Spanish debt falls on higher political risk
- Periphery debt and equities seeing some selling pressure
- LCH Clearnet lowers margin requirements on Spanish and French debt
- Spanish 10 year bond yields rise on political risks
FTSE-100: -0.65%
Dax-30: -0.46%
Cac-40: -0.78%
FTSE Mibtel 30: -1.89%
Ibex 35: -1.45%
Stoxx 600: -0.31%
European equities are now all moving clearly lower, with periphery markets clearly under the most pressure.
The reason for the latter has to do with the somewhat increased election uncertainty in Italy, where the most recent polls show Mario Monti losing support against his political rivals, particularly former Premier Silvio Berlusconi.
In Spain, the centre-right People's Party has come under increasing pressure after the left-leaning El Pais newspaper accused at least a dozen government officials of receiving illicit payments, sometimes from the construction industry. The country´s Prime Minister has denied those allegations, saying that the evidence provided by the newspaper – purportedly from the party´s own Treasurer, Jose Luis Barcenas, who himself was already being investigated - had been tampered with.
The above comes against the backdrop of an increasing sense of weariness over the slow pace of the economic recovery in Spain.
Somewhat ironically, according to EPFR global equity funds attracted another $18.7bn during the final week of January, with flows into Italy reaching their best level since the financial crisis.
Similarly, just this morning LCH Clearnet has cut its margin requirements for trading in Spanish and French public debt.
Investor confidence recovers less than expected
Eurozone producer prices fell by 0.2% month-on-month in December, as expected.
The Sentix index of Eurozone investor confidence improved to -3.9 points for February (Consensus: -1.7) after a reading of -7.0 for the previous month.
Slight losses in other asset classes
The euro/dollar is now sitting at 1.3563, off by 0.57%.
Front month Brent crude futures are now down by 0.725 dollars to the 115.92 dollar level on the ICE.

US Market Report

US open: Inflows into equities surged in January
The main US equity averages have begun the day lower by roughly 0.7 per cent on average. That following some negative news-flow on the political front in the Eurozone periphery and Friday´s large move higher on Wall Street.
Likewise, speculation regarding the possibility that Chinese authorities may soon decide to move towards a more neutral stance may also be a factor weighing on investor sentiment.
That comes at a time when some strategists are critical of the very large (5%) gain seen in US equities during the month of January, as they believe they have outpacing growth by too large a margin.
Time will tell, in any case this past Saturday the President of the Federal Reserve of St.Louis, James Bullard, told Bloomberg that if data remained strong then he would favour moderating the pace of quantitative easing.
In a similar vein, it was today revealed that investors poured a record $77.4bn into US-listed mutual funds and exchange traded funds during January, smashing the previous record of $53.7bn in February 2000, which was just before the technology stock bubble burst. TrimTabs CEO David Santschi says the inflow should make 'contrarians' very nervous because inflows into funds have historically coincided with market tops.
10 year US Treasury yields are now down by 2 basis points, to 2.05%. That is a technical resistance levels which is being watched closely by some analysts.
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Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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