So another little bounce on the open as investors price in the full expectation of another bailout for Greece next month.
There’s little chance that they’ll be able to repay their bond holders come mid-July where a default was inevitable and so now they know further aid is in the pipeline. The concern is that the money will just be frittered away and over the extended weekend Greece’s opposition party rejected the Prime Minister’s austerity package. This is the major problem and if Germany keeps throwing good money after bad, there’s little incentive for the Greeks to eradicate the debt burden.
The FTSE put on some 40 points overnight as Asian markets and European futures rallied on the prospect of a second bailout. Last night we were calling the market to open flat, but then we crept higher as the night went on. Some 40 points to the good so far this morning, with this rally being sustained around 5980 and we’re not far off testing 6000 again. It seems a far cry from a week ago when we were breaking the support levels around 5800 and now the index has broken through the downward trending line formed since the beginning of May. The big question is whether the FTSE can sustain the upward momentum and get above and beyond the year’s highs. Each rally up to now has been short lived and investor appetite seems to almost have dried up. Having recently spoken to a couple of friends in the corporate finance sector it would seem that many fund managers are very cautious about where to place their money and when they wouldn’t normally hesitate to invest in a new IPO, they’re being very hesitant. This looks to be a similar case for the broader market where there’s a lot of cash swimming around with a home to go to, but investors are unwilling to commit more to equities. Interestingly it’s not the miners that are basking in this rally but it’s more of a broader based rise.
The US also enjoyed an extended weekend which means they were out of action yesterday as well. Recently the US markets have really dictated the passage of play, regularly influencing how European indices perform in their afternoon sessions so it will be interesting to see if the Dow and S&P join the party or reverse the gain made so far. At the time of writing we’re calling the Dow to open up 100 points at 12541 and the S&P up 12 at 1343.
Economic data is sparse throughout the week until we get to Friday’s non-farm payroll. So until then eyes will remain on the developments evolving from the eurozone.
The euro is the star of trading so far today with EUR/USD spiking higher to 1.4410. This has brought it back above the 20 and 50 day moving averages indicating that the recent bearish cross of the two was a false signal. Key levels to watch over the short term are 1.4450 and 1.4500 above with 1.4320 and 1.4265 to the downside.
The equity rally is pushing the dollar lower but it’s mainly down to the euro’s strength as sterling and the Aussie dollar are hardly making much ground. AUD/USD was looking much stronger in its earlier Asian session touching 1.0760 but has now retreated back to 1.0700. As long as 1.0675 remains unbroken to the downside there could be another test of the highs.
Gold had a good day on Friday but has hardly budged over the week end. It is waiting for US investors to wake up and see where things might go later on but at 1539 this morning 1540 and 1550 are important resistance levels with the short term upward trend line coming in at around 1332. Below here 1514 and 1509 are quite important support areas.
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