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Daily Market Report 20/01/2012

European Shares
A trading week destined for disaster after last Friday’s round of downgrades is set to end with a sigh of relief. The well received auctions out of Spain and France along with news that the IMF will be looking to offer another trillion euros in aid were the main drivers for the renewed confidence in the markets. Truth is that the rates various governments pulled from the markets are not sustainable for financing deficits and spending over the medium term and it is yet to be seen how long this confidence could last. This morning the FTSE 100 remains in undecided territory which is where it has been for the past few days. At the time of writing the UK blue chip index is just in the red at 5.729 as it seems to be finding the 5745/30 area a bit of a struggle for now.
FX
The bulls have found renewed confidence in the single currency despite all the troubles, with the Euro attempting to establish back above the psychologically important level by 1.3000 against the US Dollar. With the situation in Europe looking a bit better, the single currency rises, but we have seen that before and it looks more like a short covering rally at this point. Should the euro break over the massive resistance level at 1.3050, we could start talking about a bullish reversal in the market.
Commodities
Despite edging lower this morning, as traders seem to be booking profits following the recent highs, gold is set to log a third week of gains, supported by a steady euro and rising equities. The precious metal had a fairly good run so far in this year and this could be time to consolidate a little. At 1.650 at the time of writing levels to watch are 1.570 to the downside and 1.670 to the upside. With investors betting oil demand would grow, as Europe’s funding worries are easing, crude remained steady above $111 this morning. It looks like energy traders are waiting for news that provide some direction to the liquid stuff.
Today’s Calendar
The economic calendar is quiet towards the end of the week. Today’s domestic data releases from the UK come in the form of retails sales. With current inflationary pressure finally showing signs of the sharp drop that the BoE has been predicting for the past two years, we may see short positions dominating the sterling.

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