Dax 30 Continues to Struggle on Poor German Growth Figures
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The regular Financial Markets Update from Simon Denham of Financial Spreads.
For today's update >> Financial Markets.
Spread Trading 18 August 2011
The numbers out yesterday put another brick on the rail track for those waiting for the ‘engine for growth’ to chunter into the platform.
The Treasury has yet again downgraded the prospects for the near to medium term but, to be fair, this appears to have little to do with the government’s plan A as every economy seems to be suffering in the same way.
The Tory Cuts, although I still struggle to see how a projected increase in budget spends can be considered a cut, continue to make headline news domestically. However, in reality they seem to be having little more impact on a national level than those countries that are still pumping out the cash.
In the absence of serious inflation to ‘resize’ all the debt burdens of virtually every nation Northwest of the Suez Canal, it is going to become ever harder to see where domestically fuelled growth is going to come from.
And while the Far East is gearing up for bigger internal demand it remains unclear whether they are strong enough to weather another stalling in consumer demand from Europe and the US.
Not much news today from the corporate release viewpoint, with little to excite traders, and pretty much the same on the Economic data side with just the US CPI this afternoon. This could make for a very boring session after the initial adjustment to catch up with the Far East overnight drop.
Markets are opening lower with the FTSE 100 currently trading at 5230 having tried to bounce off the support at 5260/65, which proved resilient on Tuesday and Wednesday, but finally gave way.
Spread betting investors may start to focus on the 5200/05 as the next target. On the up side the same barriers as yesterday hold good at 5320/25 5355/60 and 5370/75.
There does seem to be a certain negative miasma over market commentary on the news channels which, while not meaning anything particularly, may keep buyers on the back foot for the time being.
The Dax 30 index is not looking great either with markets slowly giving up the bounce of Thursday and Friday last week.
Over and above everything hangs the GDP number which came in so weak versus expectations. The thinking is going along the lines of “if growth was trundling along nicely at the end of the previous quarter then it must have literally run into a brick wall towards the end of Q2 to record just 0.1%”. i.e. the last month must have been severely negative.
If this is true, and since then we have had all this financial market chaos and Eurozone worries, then what are the figures for Q3 going to show?
The Dax has broken lower and is currently off some 190 points at 5760 and struggling even here. There is support at 5700, a nice round number, and 5665/75 and 5595/5600, with resistance at 5840/50 which buyers must hope will at least be challenged.
Currency spread betting markets are finally getting twitchy, with the Pound overcoming yesterday's poor economic data and now rallying through the heavy $1.6460/80 resistance to trade at $1.6540. Resistance now turns to support. So traders will be watching for any move back down here.
There is more strong resistance to a close above $1.6550 and if we manage this then dealers may target the highs of the year at $1.6745.
The last few years have shown how difficult it is for the Pound to hold above the $1.64/65 level, with particular pressure building from $1.6740 and higher. If this is challenged then Sterling could be on a rocket but of course we have been here before.
Earlier I was listening to a couple of forex dealers actually talking about the possibility of the Sterling becoming a safe haven currency. With the issues the Euro is experiencing, the Swiss and Yen being so overvalued and with investors trying to divest out of the Dollar, the Pound might benefit as a venue of last resort.
Gold was nowhere near finishing its rally, mainly encouraged by hedging demand as inflation scares made a comeback.
Not only the poor jobless figures from the UK, but the US’s bigger than expected rise in producer prices added fuel to the fire that debt on both side of the Atlantic may be worse than thought. And to give it a last bit of support, rumours circled that Venezuela might nationalise its gold industry.
All of these factors helped the yellow brick to finish at $1786.9, and carry on into today, up at $1796.6.
The above comments do not constitute investment advice and neither Financial Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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'Dax 30 Continues to Struggle on Poor German Growth Figures' edited by SD, updated 18-Aug-11
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