The start to trading this week is cautious as the eurozone and IMF confirm the details of its Irish bailout.
This has already been priced into the market so the little rally in equities we’re seeing this morning is more from a relief that the terms have finally been settled as opposed to a definite change in sentiment towards the overall issue.
Unfortunately, the biggest losers in this are the very people who’ve been saved from complete and utter financial ruin. The loans given to Ireland come with such a massively punitive interest rate attached that the cost of repaying these is almost as bad as had the country gone under. It will take more than just a few years for the country to recover and restore order to its financial institutions.
On top of this the risk of the same happening to other PIGS has not receded. Sentiment in the bond markets remains shot to pieces and the cost of insuring against a default is sky high. The focus will remain on the bond markets this week and in particular Spain’s bond yields which are the main cause for concern.
So the markets have a small spring in their step. As a minimum this details of the bailout puts the Irish problems to bed for a while. The FTSE is back above the 5700 level and once again this move confirms the strength of support around the upward trend line at the 5600 area. Below here 5510 and 5430 are major support levels. The market should find some resistance around 5750 and then 5790 if we test that area. If there’s enough momentum beyond here then 5850 and the year’s highs could be a challenge.
As November draws to a close many investors will wish to forget it pretty quickly and the bulls in particular will be hoping to see the usual seasonal rally in December.
At lunchtime today the UK sees the OBR forecast for growth. The government’s new “impartial” body might be able to up their forecast a little following the better than expected GDP numbers. There also seems to be no frugality being shown by consumers this year as shops have literally been brimming full of people wanting to have their last big spend before VAT rises in the New Year.
The euro has seen a bit of move to the upside so far this morning however it looks to be short lived. A brief visit back above 1.3300 has been exactly that and at the time of writing we’re back below it around 1.3270. The 1.3200 level is the near term support, but ever since the 1.3300 level was broken up the EUR/USD has looked like it could head towards the 1.3000 area.
Cable’s big drop on Friday has also made it look weak against the dollar as support levels have given up rather too easily. The break below 1.5650 was quite key and so bears will have their eyes on the 1.5250 area.
Gold is just on the side of the angels trading at 1367 at the time of writing. Ever since breathing out of its recent little upward channel it’s looked a bit weak so near term resistance is close by at 1370 and beyond here 1385. To the downside 1354 and 1343 should be the challenges for the bears.