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Daily Market Report 16/01/2012

European Shares
After weeks of speculations the euro zone’s worst nightmare came true on Friday, when Standard & Poor’s wave of EU downgrades spread across nine euro zone countries. With France and Austria losing their pristine AAA credit rating, Italy is now a mere notch above “junk”, while Germany not only had its triple rating maintained, but its outlook was moved off “negative watch” to “positive”. Despite the devastating news, European shares pared the early losses this morning and are now trading in positive territory as it looks like the markets had priced in the possibility of such an event, indicating that despite the headwinds, there is a degree of risk appetite out there. Investors appear happy to brush aside the downgrades and continue to look ahead to EU official’s meetings. At 5631 at the time of writing the FTSE 100 remains tentatively above its 200 day moving average. Key levels to watch are 5555 to the downside and 5720 to the upside.
FX
The euro plummeted to fresh multi-months lows following the announcement of the mass EU downgrades by S&P, before breaking above the key resistance level at 1.2672. It is unsure whether the deterioration in the euro zone sentiment could force the EUR/USD to record lows but it looks like there are quite a few trading opportunities from the sideways movement of the single currency. The British pound was the worst performing major currency in the past week, falling 0.8% against the greenback, as the data in the past week were not kind to the British pound and the coming week offers little reason to be bullish on the currency from a fundamental perspective.
Commodities
After posting the biggest one-day drop in the past two weeks on Friday, gold prices are trading steady this morning, weighed down by a strong dollar. The bulls seem to be back in town and gold’s safe haven appeal could benefit from renewed fears about the euro zone debt crisis adding further strength to the precious metal. In the energy sector, it looks like the bears are taking a breather this morning following three days of losses. With Brent crude trading steady at $110.87 on supply threats and worries over the euro zone debt crisis the bulls seem to be back in town and any increase in the risk appetite that has built up recently could add further strength to the precious metal. Key support and resistance levels to watch are $108.78 and $113.65 respectively.
Today’s Calendar
On the economic data things are a bit quit today. Traders will be looking at Tuesday’s inflation data for the month of December. The consumer price index is forecasted to fall to 4.2%, down from 4.8% in November. This is certainly a welcomed development that could give a little boost to the sterling, but it remains more than twice BoE’s target of 2%. As the BoE has indicated that a decreasing environment in the future should give more room to stimulate growth, investors will be soon speculating on another round of quantitative easing.

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