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Publication date: 1 December 2011
Author: Simon Denham, Capital Spreads
Just how close are some of Europe’s banks to going under?
Markets remain in bullish mode this morning albeit not as much as yesterday in the early stages of this session. US indices continued the party for the bulls into the night rising over 4%, which brought the Dow back above the 12,000 level and to levels not seen since the last big rally during the month of October. Many people are calling the current move a short covering rally, however at this time of year it’ll be a brave investor to stand in the way of a possible Christmas rally. As we commence the final month of 2011 few will want to go back over what has been a tough year for almost everyone, but when you’ve got the bulls charging little can stop them.
Last night’s move in the US had its affect on Asian markets and that has followed through to European equities this morning. At the time of writing the FTSE is trading at 5520 up by some 15 points from yesterday’s close and naturally clients have been selling into the strength with short positions in the FTSE index building up yesterday afternoon and overnight. Lots of good news to focus on yesterday with not only the coordinated action from central banks to boost liquidity but the private payroll figure from the US was way above expectations, followed by a very good manufacturing data giving the bulls more cause for optimism ahead of tomorrow’s final non-farm payroll of the year.
The move by central banks yesterday for some was seen more as a sign of desperation and something to be worried about rather than good news. You have to ask yourself just how close are some of Europe’s banks to going under to cause such a move. Only a couple of days ago a record amount of bank deposits were placed with the ECB as opposed to sitting in other banks showing just how much the money markets were starting to freeze over. This morning’s strength also comes as a bit of a surprise when PMI manufacturing data from China declined for the first time in three years, so those clients who’ve sold into the FTSE are probably hoping this will lead to some sort of pull back.
The risk on naturally led to dollar weakness across the board yesterday with both cable and EUR/USD making good gains. Cable got itself back above the 1.5700 level but this didn’t last long and this morning we’re back below at around 1.5650. Levels to watch to the downside over the near term are 1.5625, 1.5530 and 1.5490 meanwhile to the upside resistance is seen at 1.5775 and 1.5810. For the euro the single currency got itself back above 1.3500 against the US dollar but has also seen its share of weakness overnight taking EUR/USD back to 1.3440. Near term support is seen at 1.3395/60/05 and resistance at 1.3530/70.
Gold also benefited from yesterday’s risk appetite as speculators picked up the precious metal pushing it to 1750 and this morning it like the riskier currencies is just seeing a mild bit of weakness which has taken it to 1742. The recent bounce off the 1670 level puts this as the major support level over the medium term and those bulls that have missed out on the recent little bounce might be itching to get back in, just in case there’s another big move to the upside.
Brent also saw some good strength yesterday in line with other markets as it just touched 112 bucks before seeing some profit taking bringing it back to 110 and this morning it is just in the black at 111.00.