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Daily Market Report 05/12/2011

European shares rose on Monday ahead of the crisis talk between the French President and the German Chancellor following a week with the biggest gains since late 2008 on hopes that the coordinated effort by the world’s major central banks will unfreeze liquidity in the interbank market. Although the last NFP release of the year suggested that the American economy is starting to improve, the US Dollar shrugged off the positive figure, with the dollar index closing out its first weekly decline in three weeks as risk aversion resumed. The leading UK share index posted the best week on record for close with an increase of nearly 7.5% and the banking industry among the main beneficiaries of the rally with the central banks the primary cause of the improved sentiment. This morning the FTSE is trading at 5.557 with the recent rally now being called into question. If the bears manage to gain the control back major support sits at 5.207.
In the commodity market, gold closed the week higher by 3.67% against the dollar, with the advance coming on the back of a two week losing streak that saw prices as low as $1,665. Considering the clear trouble for the funding and credit markets, gold has been pretty quiet. Finding a definitive market sentiment for the European debt crisis with the EU Summit on Friday could finally unleash the precious metal. In the energy markets, US crude futures extended gains above $101 boosted by firmer equities markets and on worries about Iran’s nuclear programme.
In the FX market, the sterling struggled to hold its ground on Friday and the cable may continue to give back the rebound from 1.5422 as the economic calendar is expected to highlighten a weakened outlook for the UK, with a drop in production and slower rate of inflation expected this week. Apart from the EU summit FX traders will focus on the BoE rate decision for the month of December despite expectations that the bank’s monetary policy shall remain unchanged.

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