FX Spread Betting: Dollar Weakens as FOMC Meeting Boosts Euro
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The regular Financial Markets Update from Simon Denham of Financial Spreads.
For today's update >> Financial Markets.
Spread Betting 10 August 2011
The turn around yesterday could prove to be a signal that the selling has come to an end.
For all those calling that stock valuations are incredibly cheap now, investors finally listened to them and buyers filled their portfolios with supposedly cheap equities.
Across many spread betting markets bullish candlesticks in the form of "hammers" were formed in yesterday's session. These are seen as a possible sign of a change in the trend and, as we all know, the trend has been pretty much one way of late.
Yesterday's volatility proves once again how difficult trading conditions have been in the past couple of weeks.
Not many people would have thought of, or advised, buying at the low of the day when the FTSE had plunged down nearly 300 points early on in the session. However, for those few of our spread betting account holders who did, the rewards would have been justified for the bravery of going long at such a time.
Comments that followed the Federal Reserve did little to sooth investors' concerns and caused big moves in either direction. Nothing was said that could quell the volatility and so 100 to 200 point ranges within 10 minute periods were a thing of the norm.
Even though chances of a renewed bout of QE increased, this initially was not a welcome sign for the Dow as it weakened but recovered later on.
The market demanded signs of further QE and got it. This consequently sent the Dollar tumbling, gold soaring and equities seeing further severe volatility, but at least for the bulls US stocks ended up firmly on the side of the angels.
Today sees the FTSE being controlled by the bulls who seem to be back in town for now and firmly in the ascendancy.
At the time of writing the FTSE is set to open higher by some 70 points to 5235, although we were calling the market as high as 5300 overnight.
This comes as investors get drunk on the prospect of low interest rates in the US and an increased chance of QE3
Over the short term this move might see us push through the recent down trend so to the upside bulls will now be looking to test resistance at 5315, 5385 and 5535. Meanwhile they'll be hoping that support at 4820, 4710 and 4520 will remain intact.
On the economic data front, the highlight of the day is the Bank of England's quarterly inflation report.
We all know that downgrades to their GDP forecasts are expected and so confirmation that interest rate hikes will be left as is for another day can be expected.
With all that has gone on in the past couple of weeks, and oil prices plunging from their highs, the inflation doves will see the weight of the argument behind them for now. As a result, inflation forecasts could well be kept in check when expectations had been for them to be revised upwards.
The Dollar was the dog of yesterday's session on the FX spread betting markets. This came following the FOMC meeting, which caused the Euro to gain ground back to above $1.4300 and Cable to try and get back above $1.6300, but this didn't last long.
This morning both rates are at $1.4320 and $1.6255 respectively, so the Euro has just had the edge on Sterling in the past couple of days. This was partly following the worse than expected manufacturing and industrial figures from the UK yesterday and has brought GBP/EUR back from €1.1500 to €1.1350 this morning.
The gold spread trading market had an equally volatile session yesterday, rallying some six hundred points before giving back over half of those gains just as the equity markets recovered. It then recovered to test the highs straight after the FOMC, before finally ending up giving into the bears.
The move was a mirror image in fact and the daily candlestick formed a clear shooting star, which is considered a bearish signal in an uptrend, and there's no other market with more of an uptrend than gold.
Confirmation of a turnaround in the trend will have to be given in the coming days, but a break to the upside above yesterday's highs will likely confirm that the uptrend is still intact. Gold is at $1752 at the time of writing.
In line with the equities, crude oil prices rebounded from their lows but they were then slapped down after the FOMC, again before recovering.
Brent is currently at $104.75 at the time of writing and traders will want to watch out later in the day as inventory data is released this afternoon.
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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'FX Spread Betting: Dollar Weakens as FOMC Meeting Boosts Euro' edited by SD, updated 10-Aug-11
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