FX Spread Betting: EUR/USD Hits Two Year Low as FOMC Hold Back QE3
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Spread Betting 12 July 2012
Investors have been left disappointed by a lack of clarity from the US Federal Reserve last night, who continue to play the waiting game.
With a Presidential election coming up, they cannot be seen to be partisan in any way, and so any hopes that new stimulus would be around the corner were dashed.
Considering the lack of fire power left in the Fed's arsenal, they can't just push the QE button again purely because the economy is dipping slightly.
At least they have been clear that they will act should the economic conditions dictate. With the way things are going, many in the market are still expecting to see something later this year.
So whilst the Eurozone continues to suffer, and China is starting to wobble, the US economy is seeing its own erosion of confidence.
Demand from its biggest trading partners is weakening and, whilst it is not in a perilous position just yet, the US labour market is beginning to falter.
Back on this side of the Atlantic, the next chapter of the Eurozone crisis is beginning to unfold. Spain is taking its bitter medicine by implementing austerity measures and reforms that are leading to social unrest.
The last thing Spanish voters want to see is their country going down the same route as Greece, where all they can see is years of recession ahead and no light at the end of the tunnel.
Unfortunately for these countries, many of the reforms are necessary to make their labour markets more competitive and productive, rather than being so heavily reliant on the state.
It's a painful way to pay for the mismanagement of the past and full recovery is years down the line.
A lot of Spanish property remains completely empty and, where villas were 300k a couple of years ago, they are barely even half that today.
Needless to say, the FOMC minutes didn't attract many buyers to the Dow Jones last night, so the index shed 48 points to close at 12,604.
Its recent run higher, from the lows of June towards the 13,000 level, hasn't lasted and this will remain the major resistance hurdle for the index.
The Dow futures market is already pointing towards a negative start later this afternoon, and the bears will be targeting support around 12,450.
The FTSE is also in sell-off mode this morning, down some 40 points to 5620. The 5620 level is actually the near-term support and so the bears are testing the bulls' resilience.
Economic data is still a little thin on the ground today and so all eyes will be on tonight's Chinese GDP data.
In the FX spread betting markets, the EUR/USD made another new two year low yesterday, hitting $1.2212. This came after the FOMC minutes, as the Fed failed to deliver any suggestion of QE3.
With the single currency still mired in a debt crisis, and the dollar buoyed by the lack of a fresh round of printing, it looks as though the bears are still firmly in control. As a result, it seems highly probable that we will see another 2 year low during today's session.
At the time of writing, the bears continue to keep the bulls at bay with EUR/USD at $1.2220.
The weakness of the euro has given sterling a boost, much to the annoyance of UK exporters. In fact, the GBP/EUR forex market touched €1.2700 yesterday, a level not seen for three and a half years.
Following a doji candlestick formation on the daily chart, the technical analysts are pushing sterling lower and so we are currently trading at €1.2650.
The gold market treaded water yesterday, as early gains made in anticipation of fresh money printing were pared once it seemed that the Fed is likely to hold fire.
The bearish sentiment has followed through into today as the precious metal is trading at $1,565 at the time of writing.
Crude oil gained ground yesterday, as inventory data showed a much larger-than-expected drop.
Data showed that inventories slumped by 4.7 million barrels last week against expectations of a 1.5 million barrel fall.
Brent crude oil did manage to move back above $100 a barrel, but it wasn't able to hold onto that level and is now at $99.50 this morning.
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'FX Spread Betting: EUR/USD Hits Two Year Low as FOMC Hold Back QE3' edited by SD, updated 12-Jul-12
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