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Daily Market Report 17/01/2012

802″ />European Shares
The euro zone drama continued late on Monday when Standard’s & Poor’s, in an much anticipated move, stripped the euro bailout fund’s credit rating of one notch following the agency’s downgrade of nine euro zone countries on Friday. On the same time fears over a slowdown in the world’s second largest economy were eased yesterday after the GDP data indicated that the economic expansion in China was better than expected in the last quarter of 2011, although the growth is the slowest in the past two and a half years. However, with the debt crisis in Europe still far from resolved, it is likely that the situation in Europe will weigh on Chinese exports in the next quarter. The European markets look like they had priced in the latest downgrade and are pushing higher in a flurry of buying this morning. The bulls dragged the FTSE 100 up by 60 points at 5718 this morning, but they seem to have run out of steam in the meantime as the UK blue chip index is currently trading down at 5.705.
FX
The euro gained some momentum yesterday against the US Dollar after the relief rally seen in the markets with European officials pushing to speed up the implementation of a closer fiscal integration. This morning we are higher again with the single currency trading up at 1.2746 but any substantial upside movement is likely to be limited. After testing successfully the important support level of 1.5720 (October’s lows), the Cable looks set to break the downtrend that has been established in the last months of the previous year. At 1.5365 this morning key resistance levels are now seen at 15425 and 15540.
Commodities
In the commodity sector the bulls seem to be back in town. Gold jumped 1.5% to a one month high this morning encouraged by revived risk appetite on the back of a better than expected economic growth in China in the last quarter of 2011. Should Beijing implement an easing of monetary policy, gold is expected to enjoy further boost. At 1659 at the time of writing the precious metal is creeping ever higher giving the bulls hope that we might see a test of the all-time highs set back in August and September last year. Oil prices also have the wind their sales with Brent crude rising above $112 on expectations of demand growth and on the back of a weakened dollar.
Today’s Calendar
Today’s domestic data releases come in the form of UK consumer price index. Analysts expect a fall to 4.2%, which could give a little boost to the sterling, but investors will be mainly watching out for hints on further quantitative easing. Later today, eyes will be on the German ZEW survey released at 10.00 (GMT). The economic sentiment is expected to improve slightly, while the confidence in the current situation is expected to fall. Any improvement in confidence could boost the market sentiment ahead of the critical bond auctions in Greece, Spain and Belgium.

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