Daily Market Review 20/12/2011
European shares are trading flat this morning, as all eyes remain fixed to the euro zone crisis. The big picture still looks bleak with the EC President warning about significant pressure on the euro zone in the first quarter of 2012 due to a number of bonds expiring. After the UK refused to contribute to a euro zone specific fund yesterday, the target of 200 billion Euros looks increasingly unlikely. With the global economic situation being so fragile and the market activity becoming thinner as we come closer to the end of the year, any developments over the coming weeks could open the door for wild swings in the absence of any real volume. The FTSE 100 is trading at 5358 this morning. The downward channel that the UK benchmark index is forming doesn’t look very promising for the bulls. Should the price break above the 5454 area, Friday’s high, we could expect a Christmas rally.
The Euro continues to consolidate its losses over the past few days despite the fundamental developments in Europe. The EUR/USD pair notched a meager 68 pip range through Monday’s session. It looks like investors are waiting for a critical rate cut to one of the AAA-rated euro zone countries or the EFSF itself. Should one of the top rated countries fall into fiscal troubles, the rescue program could be cut and forced to pay higher rates to raise capital. The sterling is gaining ground today buoyed by rebound of the consumer confidence index from record lows, but FX traders should recall warnings of negative GDP. At the time of writing the pound is trading at 1.5579 against the dollar. The psychologically important 1.600 area remains the key resistance level to watch.
Gold worked its way up to test the $1,600 level this morning, but as investors remain nervous over the progress of a solution to the euro zone crisis and the dollar gets firmer, the gains in bullion could be easily swept away. Brent crude rose is trading up above $104, buoyed by the risk of a disruption in supply from Central Asian Kazakhstan.
Economic data from Germany released in the early hours showed German producer prices continuing their downward trajectory, in line with economists’ predictions which show a decrease in growth and exports into the beginning of 2012. For the rest of the day the calendar is pretty quiet and this remains the case for the rest of the week with the exception of the release of the BoE minutes on Thursday.