Overnight has seen the Nikkei trade the awesome range of 30 points (on a 9000 index) which will give dealers some indication of the excitement that is likely to herald the opening of European business this morning.
Summer trading activity can usually be summarized by periods of boredom interspersed with chaos as low liquidity coupled with senior management holidays combines to create sudden moves as trading desks cover risk in the absence of elder statesmen.
Unfortunately with banks virtually exiting the ‘prop’ risk side of the business the chances of directional moves gaining momentum have diminished somewhat.
Almost every major asset class traded by our clients remains at or near to the recent highs with Indices, Gold and Oil pressing to move into new territory. The problem is, of course, that until they actually achieve a breakthrough of some kind intra-day traders will continue to sell the top of the ranges and wait to see if the current move turns into yet another failed attempt or not. As mentioned before most of our clients are short of the Indices with stops marginally above recent highs.
The week might be enlivened if Greece and Germany have a slanging match but in reality there is little chance at this point of such an event. Germany will be looking to draw the line in the sand over Greece’s austerity program but is likely to give Greece more time to achieve the targets as even the most hawkish of policy makers must see that massive cuts in the current economic cycle would be self defeating and (indeed) might adversely impact other EU states merely by association. Unfortunately to add to the mix the massive Siemens has officially announced job cuts in Germany and where they go we can imagine other companies will follow. With unemployment possibly on the rise (albeit from an unbelievably low level) German ‘popular sentiment’ is hardly likely to fall on the side of giving other countries massive fiscal support even though there might, or might not, be good self-serving economic reasons to do so.
The equity markets continue to sit as a sort of wallflower at the ball as other asset classes enjoy a turn on the dance floor. European central bank policy and regulatory requirements continue to drive bonds higher, Commodities have had a big run in the sun over the last few years and for all the recent woes over property they are still a big gainer in the longer term. With margins creeping up, cash piles growing ever higher the arguments for getting into the markets are slowly gaining ground but it is fair to say that with Global Economies bumbling along on a pretty neutral GDP path it is difficult to get over excited.
The FTSE is opening at around the 5845 level .. up but not dramatically so. We continue to see clients selling into any rally as range trading remains the order of the day. If our clients are indicative of traders globally (and I see no reason to think otherwise) then the day trading position worldwide might be very short. This raises potential for a sharp (though possibly temporary) move to the upside.
FTSE resistance remains at 5865/75 but markets will probably need a ‘fact’ before breaking north.
The Dax is also edging to push into higher ground (for all of the Eurozone woes) and the last three days action has seen the price push through the downward trend line in place since May 2011. Bulls will be looking for an initial target of 7195 (the high of 2012) and then a try for the highs of last year above 7500. Bears will be focusing on the ongoing problems within Europe which are no real closer to a solution than they were a year ago and the fact that moves above 7000 have proved illusory since the fallout in Jan 08.
The Euro has broken the resistance levels mentioned yesterday at 1.2375/85 and our clients were obviously looking at the same technicals as I was with large short reversals clicking in at around the 1.2385/90 level. Longs will be looking for the 1.2440/45 level as a first target.
Gold continues to slowly push higher with the 1630 barrier now looming large. Dealers will be wary of a reaction pull back (as per the last five attempts at this level ) but the reversals are getting weaker which will give the bull optimism that ‘this time’ it will happen. Clients have been long but are now taking profits and letting someone else push us up.