Greek Election Uncertainty Weakens Financial Spread Betting Markets
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Spread Betting 14 June 2012
As we get towards the end of the week, traders will be reminded of Clint Eastwood's seminal catchphrase 'Do you feel lucky, punk?'
Last weekend, some of our clients had an unexpected windfall after the markets surged when the Spanish 'banking bailout' was trumpeted by the weekend press.
In contrast, other clients had a terrible time as the price gaps handed them a painful lesson in risk/reward.
As a result, we can expect to see quite a bit of position flattening over the next 48 hours.
The Greek electorate will soon decide between a quick execution and a long, lingering death spiral. The major problem is that we really don't know how the financial spread betting markets will react to either result.
Plumping for a quick exit might actually be taken positively, as at least a decision would have been made.
Also, if the ensuing chaos is serious enough, it may bring other nations to their senses over their respective fiscal responsibilities. I wouldn't hold my breath, though.
Growth is likely to be elusive over the medium to long-term as more and more funds are diverted to propping up the status quo. In the UK, this situation is mirrored by the huge pension deficits of corporate Britain.
Many companies will be forced to divert ever increasing sums into the respective pension pots, taking it away from investment and sales.
With the BoE looking likely to press the QE button once again, the swings and roundabout similes will have another day in the sun.
The effect of the BoE driving down Gilt yields even further, to release liquidity needed elsewhere, will be matched by UK plc pulling in its new investment plans another notch.
Oddly enough, equity yields are looking exceptionally good right now. If you consider all the potential liabilities, it could be argued that the average company is in a better fiscal position than almost any OECD nation.
Shares markets may well suffer badly in a collapse of the EU project. However, many investors are operating on the assumption that politicians and central bankers will print any amount of money to hold their shining achievement together.
In this environment, we might conclude that the huge piles of investment cash waiting for a home might start to dribble back into play.
The FTSE is opening on the soft side this morning but not exceptionally so. There has been some early volatility as the opening few minutes saw a thirty point rally, followed by a fall, followed by a rally etc.
Investors are trading over shorter and shorter time periods, with many of our clients closing out short-term profits/losses within minutes of opening them.
In truth it is difficult to argue for taking a longer-term view on indices. Direction is becoming so uncertain that a healthy profit can disappear very quickly, often for no obvious reason.
We are pretty much in the middle of the week's move, having been 100 points higher and lower, and almost exactly where the FTSE futures market closed on Friday night.
There is resistance on the short-term falling trend line at 5480, which we did see earlier today, and then at 5505/15 and 5570/75. On the support side, levels to watch for are 5430/35, 5405/10 and 5380/90.
The US markets are equally spooked but there does seem to be a greater appetite for buying stock, aside from Facebook of course. We are even seeing some longer-term players making a few high profile investments.
The Dow Jones is immediately supported at 12,510/25 and then 12,475/85, which is also the short-term rising trend line.
The 12,400 level is stronger support, as the Dow has bounced off here a couple of times this week, and then the 12,320/30 area was the support at the end of May.
The currency spread betting markets seem to be particularly treacherous at the moment. Even professional forex traders can't seem to decide whether any news is good or bad for their chosen markets.
After last weekend's volatility, it would be a brave trader to commit too much ahead of the Greek election. As a result, we are likely to see an overall flattening of exposure.
The euro, currently quoted at $1.2580/81, seems to have settled into the $1.25 region quite comfortably. A speculative exit of a weaker member state might actually draw in buyers, however, any further printing will drive the euro lower.
Longer-term we are probably looking at $1.18 to $1.42 being the range, but where it will go in the meantime is anyone's guess.
Support is offered at $1.2545/55 and $1.2520/25, whilst resistance is actually just above the current level at $1.2595/1.2605 and then $1.2640/50.
The GBP/USD spread betting market has recently traded all the way down to the major support levels at $1.5250/1.5300, which have dominated trading for two years.
However, the pair seems to have decided that, as with the last four attempts, there are not enough reasons to drive us lower just yet.
If economic numbers continue to disappoint, coupled with further QE and lower interest rates, then the attraction of sterling may wane even further. It was only a few weeks ago that we were pushing up to the low $1.60's.
The fact is that sterling has oscillated in a $0.12 range, from around $1.5250 to $1.6450, for nearly two years. In all that time it has shown little appetite for a break out.
Today sees support at $1.5470/80 and $1.5440/50, with resistance at $1.5505/15 and $1.5535/45.
The gold spread betting market is still unable to get below the $1,520/50 range and has now bounced once again from this level. However, the attempts are becoming more frequent and the rallies seem to be petering out at low and lower levels.
We really need to get above, and hold, the $1,640 level and then $1,670 to reignite a strong buying pool.
In the meantime, the daily ranges continue to be quite large, and this is attracting our spread betting clients. Traders should be cautious however; wide ranges can offer opportunities to both win and lose over a very short time scale.
Support for the precious metal is at $1,615/16 and resistance is at $1,622/24.
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'Greek Election Uncertainty Weakens Financial Spread Betting Markets' edited by SD, updated 14-Jun-12
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