So Christmas Eve is upon us and for the markets this morning things seem to be crisp and even. The FTSE is being called flat to just higher as the half day trading session gets underway. Yesterday we breached the 6000 level right at the death of the session and so the question is whether we can close above this level before the holidays.
The December rally until now has been fuelled by the prospect of the US and other major Western economies continuing to grow even if assistance from central governments is being phased out. Sentiment for equities is certainly bullish, even if our clients continue to sell into the strength. In the past few weeks interest rate expectations have suddenly started to head higher. The threat from inflation is real but the FOMC is still consumed with the idea of preventing deflation. The recent move in US bonds might cause them to rethink that position.
There’s no doubt that investors have not glossed over the eurozone crisis and if there is any rally that follows, the market will not go up in a straight line. They rarely do of course!
The euro put on some gains yesterday and looked to have stopped the rot against the Swissy. The Swiss franc has gained a whopping 15 % against the euro and 3.5% in December alone. Every bit of euro strength in 2010 has been swiftly batted away by investors, but yesterday’s move formed a bullish engulfing candlestick bouncing off the 1.2500 level, back above 1.2600. This morning EUR/CHF is at 1.2610, support is at the recent low around 1.2435 and if we get below there bears will be targeting 1.2380. The bullish engulfing needs confirmation before we can say that there a change in the trend for this cross over the short term, so resistance is at 1.2635 and then 1.2715.
Against the dollar the euro didn’t see quite as much strength, but it certainly saw a decent bit of volatility towards the end of the session rallying from its lows around 1.3050 to 1.3140 before settling back around 1.3100. This morning EUR/USD is at 1.3130 and despite all the negative sentiment and news flow coming out of the eurozone, the currency remains determined to hold the ground above 1.3000.
Costs for insuring Greek government debt rose yesterday so the pressure on the euro remains. Next…
