The markets don’t seem too content with the result of Friday’s discussions between Greece and the IMF/EU as we’re drifting a little lower on the open this morning.
As much as Greeks don’t like the uphill struggle they face in order to balance the books it’s a medicine they have to accept. There’s no question that even if they do implement the structural changes and asset sales required to meet their budget deficit targets in the years ahead it’ll still be tough and if everything goes hunky-dory it will still take even longer to get any sort of meaningful growth back driving their economy forward. The rhetoric out of the meeting might have hit the right tone, but the market is saying “we’ve heard it all before” and it doesn’t make the likelihood of a default or another bailout any less likely. More financial assistance for Greece in whatever form will just be kicking the can down the road and if they can’t sort out their mess then what are the chances of the others doing the same? These are questions that have been on the lips of investors throughout 2011 in a recurring theme that doesn’t want to go away.
In Portugal a newly elected party has the unenviable job of picking up from where the last administration left off and implementing austerity there in order to avoid going down the same route as Greece and fast.
Investors continue to ponder whether the weakness throughout May has further to go as not only is the European issue clouding investors’ minds but worries over global growth are also keeping the buyers at bay. London stocks are now sitting right on the upward trend line from March 2009 and so the near term support around 5800-5850 is just holding for now. With the index below its 200 day moving average any close below this trend line and there might be further weakness to come for the FTSE 100, but other indices are proving a little stronger. The Dax and Dow are similarly hovering above their upward trend lines and remain above their 200 day moving averages for now but tentatively and by only some 100 points or so. For the Dax key near term support is 7000 and the Dow 12000/11900.
Economic data is very thin on the ground today with nothing except some EU inflation numbers then the rest of the week gets a little busier with the highlights of the week being the BOE and ECB rate decisions on Thursday, although these can hardly be called exciting considering that no action is expected.
The euro has remained remarkably resilient in the face of all the eurozone turmoil with EUR/USD putting on 2.5% last week. The sharp bounce off the 1.4000 area has been aggressive to say the least and now bulls are eying up the 1.5000 level again. The pair is at 1.4630 at the time of writing and so 1.4700/55 are upside targets with any break below 1.4580 and then 1.4520 calling the recent strength into question.
For sterling things haven’t been so easy and cable remains capped by 1.6500 meanwhile GBP/EUR got smashed up by the euro’s strength diving back towards 1.1200. For now GBP/EUR has found a little bit of support and is currently at 1.1230 and last week’s move was also interesting as to just how quickly sterling gave up the gains it had built up throughout May. When you look at the pair which is made up of two currencies that few investors would actually want to hold, the euro just has the edge on sterling as the likelihood of a break up is so slim and even if there is, it’ll mean the stronger countries remain in the single currency.
Gold has slowly but surely been creeping back higher, but it is one of those moves that make you think that a sharp move in either direction is around the corner. The 50 day moving average has served the precious metal well in the last few moves, bouncing off it twice so you’ve got to fancy a move to the downside if we break below it.
Silver has struggled to regain momentum ever since its huge correction back at the beginning of May. Hovering around $36.50, the 35.00 mark looks to be the key near term support with gains being capped by $40.
Crude markets will be keenly watched this week with the Opec meeting getting underway. Brent has drifted sideways for a few weeks strongly supported by $100 to the downside but pressure is on the bulls as expectations are for an increase in production resulting from this week’s meeting.
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