It didn’t take long for the New Year rally to fizzle out as the themes that raised concerns throughout the latter part of 2010 are at the fore again with Portugal being the target now.
Quite a few months ago many had predicted that the Portuguese would need a bailout from the EU and IMF and now it looks like things have been taken a stop closer.
We’re now in a situation whereby the Eurozone is starting to sound like a broken record. We started in the spring of 2010 when Greece said they didn’t need assistance and were then promptly bailed out. Then the same happened to Ireland in the Autumn after they put up a good fight but eventually caved in and took their bailout. Now it’s Portugal’s turn.
Despite all the denials from their politicians it looks like the bond markets have reached the point of no return with Portuguese bond yields having hit 7% on Friday and heading further north still.
There is real concern that this is not the end of the crisis and if Portugal doesn’t receive emergency funding soon, Spain could easily topple next.
So markets are in profit taking mode with the FTSE 100 retreating from the 6000 level throughout the morning.
The weakness has been quite assertive as it’s not just the Eurozone sentiment that’s hitting the financial spread betting markets this morning. There are reports of a leak in a BP pipeline in Alaska and Brazil are seeming making unhelpful noises about trade wars.
BP’s shares are some 2% lower today and the retracement from the £5 mark confirms that last Thursday’s “shooting star” was an end to the recent strength. However, where we are now at 480p might see some support with the level having served previously as resistance.
For the FTSE 100 we’re back around 5950, just finding support for the time being at Friday’s lows. A break below here will open up 5900 and then 5860 is quite crucial meanwhile to the upside 6020, 6050 and the years high of 6090 are the challenges.
The worry for the bulls is that the index is testing the 20 day moving average which in the past has seen some a couple of nasty corrections to the downside following a close below it. We saw this is August and November last year, so the bulls are definitely nervous at the moment.
There really is nothing in the way of economic data today so the focus will remain on Portugal and its bond yields.
The Euro is the whipping boy once again on the forex spread betting markets as EUR/USD breaches below the $1.2900 level this morning. The low so far at $1.2875 is already being targeted by the bears so a break below here will open up $1.2830 and then $1.2750.
The recent trend has really been exceptionally bearish for the Euro as no one seems to love it at the moment, but this is one of the things that the Eurozone so desperately needs. There certainly won’t be any intervention from the ECB to halt the weakness and they’ll be hoping for more.
Cable is just about holding its own but has dipped below $1.5500. One of the big moves recently has been GBP/EUR getting back above €1.2000 having been as high as €1.2050 this morning but since then retracing back to €1.2000.
Gold is in oscillation mode after a bad week for the precious metal. Now below both the 20 and 50 day moving averages the bulls are having their resolve tested.
Dollar strength is keeping metal price gains in check and we’re a few Dollars in the black this morning at $1373. $1380 and $1385 are upside resistance levels and to the down side Friday’s low of $1352 is a key support area.
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'Spread Trading 10 Jan 11' edited by SD, updated 10-Jan-11
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