Investors seem to be pinning their hopes on the fact that there might be some sort of lasting agreement that will once and for all deal with the sovereign debt crisis. 

It could well be wishful thinking as we’ve seen a lot of hot air coming out of the mouths of politicians in the last couple of years, yet the situation worsens by the day and meeting after meeting of finance ministers, G something or other leaders, ends up in just a load of back slapping and comments about how it’ll turn out all right in the end.  Well, unless something is done soon European leaders will get a shock and be the ones that were steering the ship when one of the EU’s member states defaulted.  The markets are now pricing in a 90% chance of a Greek default, so basically they will default – unless...

A lot is riding on tomorrow’s meeting in Poland which is also being attended by the US Treasury Secretary Timothy Geithner.  Calls from the US and China are becoming more frequent and louder for Europe to sort its problems out, as they after all (and the rest of the global economy for that matter) have so much riding on the matter.

Until then markets may continue to just gain a little ground as the hopes build, but if the desired outcome isn’t achieved, there could be another almighty move to the downside.  As mentioned already this week, a lot of bank stocks formed rather bullish candlesticks which so far have seen their share prices discontinue their selling.  The fact that two French banks were downgraded yesterday but their share prices actually rallied indicates how much of the bad news has now been priced in.  It is still far too early days to call this a floor in the sell off however.

This morning the FTSE is continuing in a similar vein to the way it left off yesterday following a decent bout of buying in US markets last night.  At the time of writing the FTSE is at 5285 so bulls must be thinking the near term resistance around 5325 is a possible target, which our quote actually hit towards the end of the Dow’s session last night.

Economic data today comes in the form of UK retail sales this morning which is expected to fall following a tough August for shoppers after much of the discounting of the earlier summer months came to an end.  Then, later on from the US, there’s the Phili Fed which caused some fireworks last time it was released after plummeting last month.  This time a bounce is expected from the -31 shocker to around -16.

The euro saw a bit of strength yesterday as hopes of an EU rescue just ticked up a little.  The move brought it out of its short term downward trend and for now it seems to have found some support from the 1.3600 level.  Overall though things still look bearish for EUR/USD following the big falls of last week and the break below its 200 day moving average on the daily chart.  This morning the pair is at 1.3730 so near term support and resistance are seen at 1.3625/3555 and 1.3790/3840 respectively.

The euro’s strength was also against sterling which looked to have turned the tide against the single currency only a few days ago when it traded up to 1.1700, but the move higher for GBP/EUR was swiftly reversed bringing it back below 1.1500.  This morning the pair is at 1.1480.

Gold continued to head sideways and over the past few days it really has been out of the headlines.  At 1810 this morning the bulls remain nervous over the double top which looms large and an upper downward trend line resistance has formed putting more pressure on the bulls.  Near term support and resistance for the yellow metal is seen at 1795/70 and 1830/50/86 respectively.  One gets the feeling that the recent calm in this market might lead to a big move in either direction sometime soon.

Gold’s little cousin silver also saw a little weakness yesterday and has found it hard to break beyond the $44/45 mark with all the concerns over global growth recently.  This morning it is at 40.50 with near term support and resistance seen at 40.00/39.75/39.00 and 40.80/41.40/42.10 respectively.

Brent is also failing to convince the bulls that there’s much upside to be had.  At 109.40 at the time of writing and for the bulls the targets are 111.75 and 112.70 whereas for the bears they’ll be hoping for a test of 108.50 and 107.20.

This comment is from Capital Spreads.

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