Many investors maybe rather bamboozled by the move yesterday and this morning in the face of such chaos in Europe.
The Swiss central bank drew a line in the sand for its currency by saying it will defend the 1.2000 area against the euro and the crisis over sovereign debt continued to rumble on. We continue to see politicians’ indecisiveness fuelling volatility which threatens the very being of the project they are so keen to defend. Fear that defaults will send the crisis spiralling out of control it still palpable and a breakup of the eurozone very much a possibility, so why isn’t something being done?
For other global investors the situation also remains reasonably unsettling due to the knock on effect this will all have on the rest of the world. The chances of a second recession are greater now than they have ever been and the lack of confidence is doing it's part in causing growth to take a dive.
But despite all the doom and gloom the FTSE is looking in relatively good shape. The equity markets have been trading in ranges that suggest that they might be finding a platform of support and for the FTSE yesterday’s bounce off the 5050 area coincided with a similar bounce from the same area last week. In the face of all that’s being thrown at the market, yesterday’s move was encouraging, but largely assisted by the good bounce from its lows by the Dow.
The 5400 area remains the crucial resistance area that the FTSE needs to get back above before we can start to be more confident that the recent sell off is over, but even though it’s only 150 points away, it seems like a mighty task. This morning we’re at 5250 at the time of writing so this upside target and the major support level at 4800 seem to be restricting the index to another trading range, but quite a wide one so volatility isn’t expected to get any lower!
Economic data releases today come in the form of industrial production from the UK and Germany and then we end the day with the US Fed’s Beige Book, so nothing that is considered to be a major market mover.
It was fun and games yesterday for the euro as it rallied early morning as high as 1.4281 and then plummeted all the way back down within a few hours. It went as low as 1.3973 towards the end of the day over concerns that the German economy is slowing. This morning, the dollar has weakened ahead of the release of the Central Bank’s Beige Book survey of economic conditions. Traders this morning appear to be happy to take on some risk today as they are moving out of the safer dollar. Currently the euro is trending higher against the dollar at 1.4070 and sees resistance at 1.4025 and support at 1.4100.
FX markets were all about the Swissy yesterday which saw significant strength after the Swiss central bank, rather than sitting on their hands, decided to cap the depreciation in the Franc at 1.2000 to the euro. This caused gold to plummet yesterday as investors chose to release funds and hop on the Swiss move. This could mean that risk-averse participants will have one less haven to find safety in and they showed their dismay at this by pushing the precious metal down 28 dollars to 1873.5, after stretching to a new all time high of 1920.9 earlier in the session. It doesn’t look like investors have calmed yet either, as at time of writing, the hedging favourite is down a further 21 bucks to 1846.9.
Much like gold, oil was pushed down by a strengthening dollar as the two have an inverse correlation. After having enough of a beating though, the energy market decided to start drawing its power from the equity markets, which were surging ahead after bouncing off their daily lows and in turn helped the black gold break into positive territory for the day despite the ongoing fears about the health of the economy. This morning Brent is up some 70 cents to 113.60.
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