Spread Trading 25 Jun 09
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The regular Financial Markets Update from Simon Denham of Financial Spreads.
For today's update >> Financial Markets.
Spread Trading 25 June 09
For those who like symmetry and patterns in the markets the last six months or so have been a boon. As mentioned many times in these comments.
Yesterday saw the Dow Jones hit the same support range as held the markets up back in May and ‘lo and behold’ here we go again. 8200 to 8250 proved too much of a battle to breach on six separate occasions in just a couple of weeks last month and traders have obviously decided that the same action is likely to reoccur this time as well.
The sell off late in the trading session on the Dow was not matched by the S&P 500 which failed by fully 70 points to record a lower print than Tuesday’s low and the odds may now turn back towards the upside once again.
The FOMC decision to leave rates unchanged was hardly startling but the statement that went with the status quo was much more upbeat than might have been feared.
It now appears that most of the world’s economic forums are agreed that the worst of the down turn is over and that we can return to growth in 2010/11. I would be rather more comforted if any of them had forecast the chaos of the last 12 months in the first place.
The continued emphasis on this recession being the worst since...ooh...before Christ do not sit well with those who remember the seventies, eighties and nineties when mass unemployment and very real suffering was a day to day experience of those downturns.
As mentioned, buyers were in evidence for much of yesterday and have the bulging pockets to prove it this morning.
Trading continues to be fast and furious but for those bulls out there I do have one piece of rather good news. A newspaper commentator, TS, who spent most of the last 18 months being bullish (in the face of everything) has just turned bearish (if his latest article is to be believed). For those of you who love a good contra indicator this may well be as good as it gets.
For all of the comment about the end of the bull run the FTSE is currently just 230 points from the highs of May. Not much of a reversal. About 5%. We have had many individual trading sessions in the last year with bigger ranges.
Like many commentators I am nervous about the strength of the current ‘green shoots’. I fear that what acceleration in activity we do get will be snuffed out (and more) by the increases in taxes and cuts in spending that must occur after the next election.
Sterling, yet again, played the range yesterday. By the look of our books our Financial Spread Accounts seem to have picked this one out as well.
$1.6200 to $1.6550 vs the dollar has been the play to follow for weeks now. Although it briefly went up to $1.6600 in the morning, the reaction to the durable goods orders in the afternoon was music to the ears of the sellers.
Another 250 pip trading day makes it 19 sessions in a row of plus 200 points range which is a good indication of why cable is coming back into fashion for our spread betting clients.
There is a rising trend line from April which we touched on this morning at $1.6320 which may well give a good clue as to direction in the short term. If we hold above it then the odds favour a return to the highs. If we break lower then the bears will be focussing on the long term up trend currently at around $1.5575.
The Euro is doing well after the OECD announcement of an anticipated return to growth next year but the poor old pound may be looking at rates of 0.5% for a year or more from here.
This will not be pleasing to the cost of carry merchants and there must be renewed fears of a return to sterling weakness.
A few years ago the Yen was being hammered by the rate difference between Japan and the rest of the G10. And this was for a country with a massive trade surplus. If the UK has to retain low rates as others increase theirs what attractions there are for the pound may start to fade once again.
Gold and Oil have recovered some of the losses of earlier in the week now but the fact remains that there does not appear to be the kind of excess demand out there that would warrant a return to the highs once more.
Gold seems to have had its second play for the highs and while we are still within striking distance of the peaks it must be recognised that a physical asset, with no return, and which costs a considerable amount to hold is not exactly up to date with current electronic financial systems.
Wealth is held in computers not in bank vaults.
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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'Spread Trading 25 Jun 09' edited by SD, updated 25-Jun-09
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