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Daily Market Report 25/01/2012

European Shares
Strong manufacturing data out of Germany and France, indicating an expanding service sector this month, lifted the markets yesterday and boosted confidence across Europe, despite the IMF’s revision of its global growth forecast for 2012. Equity markets continue to remain strong in the face of the uncertainty surrounding the euro zone, with the FTSE 100 heading towards July’s highs. This morning a bit of weakness has greeted the early session. At 5755 at the time of writing the bears seem to be dragging the UK blue chip index lower. In anticipation of the Greek debt deal and the results of the meeting in Davos the focus of the day today shifts to the other side of the Atlantic, where the Fed is set to make its policy decision.
FX
The EUR/USD remains tentatively above 1.3000 but the bears are still out there. Any favourable Greek resolution is likely to open another rally in the single currency before the market finally relents to the deeper euro zone issues. If the pair manages to break above resistance at `1.3100, that will open the way for the next resistance test at 1.3197. With the focus of the day for FX traders being the Fed decision, any signs of accommodation lasting for longer than projected or of additional accommodation would open the door for another bout of broad based US Dollar depreciation.
Commodities
Gold is flat this morning ahead of the Federal Reserve’s policy meeting, which could weigh on the dollar. Any sign that interest rates will stay lower for longer could put pressure on the greenback and boost the precious metal’s safe haven appeal. At 1.667 this morning key levels to watch are 1715 to the upside and 1600 to the downside. Yesterday’s strong manufacturing data boosted demand growth prospect for oil, with Brent crude holding steady above $110. Oil investors are also awaiting the results of the Fed policy meeting later in the day.
Today’s Calendar
The highlight of the day in European hours is the UK GDP figure, with expectations calling for output to shrink 0.1 %, marking the first contraction in a year. The BoE is releasing minutes from its January 12 policy meeting this morning, with investors interested to see if any members of the rate-setting MPC committee voted for an expansion of quantitative easing. Any hint about additional stimulus is likely to weigh on the sterling. Turning to the Euro area, the German IFO business confidence gauge is expected to rise for the third consecutive month, continuing the trend of improving regional data since the beginning of the month. More economic data come later from across the Atlantic with the US pending home sales index among the most notable.

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