GBP/USD Forex Spread Betting Market Rises on Euro Weakness
Spread Betting 18 June 2012
So the Greeks went for the painful austerity rather than risk the unknown 'wasteland' outside the Eurozone.
For all of the horror stories, it must be pointed out that quite a few countries across the globe manage to exist without being a part of the single currency.
Our spread betting account holders are initially wondering if the overnight move is going to repeat the events of last Monday. The euphoria surrounding the Spanish bailout lasted only two hours before markets dropped off again.
The early indications are not good. The FTSE 100 was called up at 5595 at 23:00 last night but is now trading over 100 points lower around 5480 - 5490.
The DAX 30 spread betting market has performed similarly, with the index now 130 points down from its initial highs at 6390.
Unfortunately, underlying all of this is the unpalatable fact that Greece is just an extreme instance of a general European problem. The developed world just has too many liabilities and too little income to pay for them.
Germany, virtually the only major solvent economy in the West, must be wondering what it has tied itself to.
The simple fact is that, over the last 30 - 40 years, Europe, and the UK for that matter, has built up calls on its purse that cannot possibly be afforded.
We all know this, but we attempt to tinker around the edges to somehow make the numbers work for one more turn of the wheel.
Unfortunately, we are faced with aging populations, more dynamic competitors out of the developing world, a reliance on imported energy, a huge weight of social benefits and the dead hand of regulation.
These, amongst many other factors, are all holding back investment and there is just no easy route out of the problems. And democracies are always bad at making the hard decisions.
Whilst the Germans have proved themselves to be fiscally sound, there must be some limit as to how much they will sell their own future to support the current plight of other people.
With governments looking for extra sources of revenue, the corporate cash pile must be looking very attractive just around now.
There is something of a limit as to how much head office relocation can reduce your local liabilities. As a result, the Irish 12% corporation tax centre is unlikely to prove a haven for too many corporations.
The left leaning Greek opposition indicated that company tax levels were a target, I fear that this is not going to be an isolated attempt.
The fact is that most tax payers do not own stock and so do not really care where the markets go. Taxing the major conglomerates for revenue made within their borders, and disallowing any offsetting 'investment', must be high on the list of targets.
Analysts and investors are well aware of this possibility which could well act as a dead weight in the medium-term.
Nevertheless, despite the early sell off, indices spread betting markets are still marginally higher than Friday.
For the DAX 30, there are some pretty solid resistance levels above us at 6345/55 and 6435/45. These levels could be bolstered by the fact that we are unlikely to see any highly positive economic data in the near-term.
Support is at 6220/30 and below here is the volume area of the last few weeks, all the way down to 6070/80. Below here, traders will be fearful of a return to the recent lows near to 5900.
Since I started writing this article, the FTSE 100 has slipped into negative territory for the day and is looking pretty weak.
At one point it hit short-term support at the 5460/65 level but sentiment doesn't seem to be favouring a rally just now.
The current level is almost the mid-point of the last two and a half years of trading. In addition, the 5500 region is generally seen as a short-term point on the way to somewhere else.
If we can actually manage to get above 5500, and hold it, then some of the technical indicators may begin to turn positive. Recently, however, we have been unable to close above this level despite moving about in intra-day trading.
The currency markets have matched the indices blow-for-blow this morning, with the euro rallying 100 points initially, only to give it all back.
I tend to find myself in a very small camp over this. In the long run, I think that the euro would rally if the Greeks had been kicked out. Not the other way round.
Keeping them in only serves to weaken everyone else. Consider that most people would accept that a structure is only as strong as its weakest point.
With the Greek default and bailouts, other nations know that they will always have a lender of last resort and so will shy away from the really critical reforms.
For all of Germany's power, it is only one nation amongst many and 'the many' will eventually drag down 'the one'.
The EUR/USD pair is now at $1.2625/26 and is just above a solid support level at $1.2610/20. Below here support comes at $1.2580/90 and then further down at $1.2435/45.
On the upside, we can see resistance levels at $1.2670/75 and $1.2745/55.
Today may well be a case of damage limitation and 'sitting on hands' as traders try to get a handle on sentiment and support.
The pound had a great day Friday on as funds flowed away from the euro prior to the weekend.
We are back up to $1.5660 at the moment, a level not seen since late May, having visited $1.5270 in the meantime.
The GBP/USD forex market has oscillated around $1.57 for the last three years and there seems no real reason for us to believe that this will change.
The economic problems for the UK are the same problems for most of the world, including the US, and so the attraction of one currency over another is hard to evaluate.
Yes we can point to various items, such as inflation, deficits, growth, tax, interest rates etc. However, the major currencies all seem to have their fair share of problems.
From a technical analysis point of view, we can see resistance at $1.5690/00 and $1.5745/55 and support at $1.5640/50 and then down at $1.5600. Although, at the moment, it does not look like we are trying to pressure either end.
In the commodities spread betting markets, gold is weakening as the end of the world failed to happen. As such, the short-term reasons for being long of the precious metal have evaporated.
Traders must be wary that for the last few months the falls have been rather more violent than the rallies. As a result, caution should remain the watchword.
There was a nice bit of activity between 13:00 and 1:400 on Friday as the US traders looked to position themselves ahead of the weekend. We might see a similar reaction today as they move to reverse these positions.
Late last night, at 23:45 London time, a big stop order was triggered as someone, who had presumably bought protection on Friday, was closed out.
The metal spiked down to $1,606 followed by the inevitable rally all the way back up to $1,629, where the market started from.
We are now at $1,622, looking at the resistance of $1,626/28. The market is struggling to close above $1,626 and so it will be worth noting if there's an overnight settlement above that level. Above here is major resistance at $1,638/40.
On the downside, there is little near-term support aside from the natural support level at $1,600.
Minor support is also at $1,582/84. The long-term support around $1,545, and especially at $1,528/30, is looking very hard to beat.
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'GBP/USD Forex Spread Betting Market Rises on Euro Weakness' edited by SD, updated 18-Jun-12
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