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Daily Market Report 01/02/2012

European Shares
The situation in the euro zone remains critical with unemployment in the single currency area hitting the higher level since the euro’s creation, adding to worries that a prolonged recession may be in the cards. As the weak global demand holds back exports, economic activity in euro zone is likely to contract this year even if a euro zone break-up is avoided. Despite the Greek PSI talks lingering on and the euro zone economy remaining on shaky ground, investors gained confidence from the better than expected Chinese manufacturing data with European stocks rising for a second straight session today. The FTSE is back above 5700 and has been rallying throughout the morning taking it to 5746 at the time of writing.
FX
As February kicks off the forex market is trying to decide whether to extend corrective gains against the greenback or to relent to the broader bullish momentum of the US dollar. The EUR/USD has failed to close above the key resistance at 1.3200 over the last few days and has been trading down since the beginning of the week. At 1.3056 this morning the trend remains firmly in a negative stance. The GBP/USD hit a fresh 2 month high at 1.5795 yesterday. This morning it appears to be a bit of a bull market squeeze with the cable trading in negative territory at 1.5741.

Commodities
Bullish sentiment towards gold has really built up in 2012 with the yellow brick ending January with the biggest monthly rise since August. This morning the precious metal is seeing further strength to 1740. Brent continues to be propped up by the tensions between Iran and the West with the price above $111. Oil is likely to stay rangebout this week as bullish and bearish factors affect the markets in both directions.
Today’s Calendar
In European hours eyes will be on the Portuguese debt auction with investors watching closely the average yield amid worries that the Greek troubles could spread to the Iberian country. Today’s domestic data releases from the UK come in the form of manufacturing PMI that is expected flat in January having shown contraction over the previous months. Further deterioration in leading UK data could amount to downward pressure on the sterling and increase speculation on additional QE.

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