Spread Trading 25 Mar 09 - Trading the Currency Markets

Spread Trading 25 Mar 09

Today's update see » Financial Markets.

Spread Trading 25 Mar 09

Global indices have seen a little profit taking following the recent sharp rallies. On Wall Street, up to Monday, the Dow Jones had seen its sharpest two week rise since 1938 and from the lows earlier this month we’ve rallied 18%.

Since the aggressive bear market rally took hold in August 2008 we’ve seen three previous rallies of around 20% and so the bulls are being tested for their conviction at this moment in time. For the Dow and the FTSE we seem to have stumbled at the psychological levels of 8000 and 4000 respectively and at the moment this bear market rally (or beginning of a bull market?) seems to have come to an end.

This small retracement has attracted a few buyers and clients, who have on the whole done very well in the last two weeks from this rally higher. Some buyers are of the view that we’re going to push through resistance levels.

It’s amazing how in just a matter of two weeks confidence can take a shot in the arm and investors who were not all that long ago looking to sell into every rally seem to be buying the dips.

As Q1 2009 draws to a close it seems to be coinciding with a recovery in equities and history shows that shares are often bid higher towards the end of the quarter as fund managers rush to fill their portfolios with cheap stock.

April is also historically a positive month for equities and so investors could also be positioning themselves for a continuation in this move up. Of course many remain cautious and despite some claims that we’re at the beginning of a bull market, from a technical point of view the overall trend is still bearish.

As well as the near term resistance levels, market participants will watch closely to see whether the rally will continue into next month and replicate the usual historical length of time that bear market rallies last, which is thirty days. That would take the current move to around 22nd April.

Resistance in the S&P 500 stands at 838, in the Dow at 7980 and there are still calls from some technical ‘experts’ that this move higher represents a good selling opportunity and the US indices could again test the lows of a couple of weeks ago.

So what does this all mean for here and now? Well indices are having a respite this morning and yesterday saw relatively narrow ranges considering the sort of moves we’ve had in the last few sessions. Investors seem to be pondering the next move before putting anymore money on the table. The up and coming economic data could well play a part in how the rest of the week pans out.

The FTSE is dipping a little on the open as we currently sit at 3890 and the main news flow this morning is Legal & General’s announcement that they are cutting their dividend, which was pretty much to be expected and so the stock is only a little lower in early trade.

In Germany, the IFO business climate figures are released at 9am UK time and a small rise is expected, then from the US we get durable goods data at 12h30 followed closely by new home sales at 14h00. Existing home sales reported a surprise jump on Monday and a few revisions have been made to today’s expectations which are meant to post a decline of -2.9% month-on-month according to consensus.

Currency markets have been a little quiet overnight but the dollar seems to be clawing back a little of its loses from the last few days as the dust seems to be settling on the US government’s huge Private Public Investment Program.

Cable seems to have formed a double bottom so far in 2009 and although a large chunk of sterling’s move higher has already taken place from the $1.3550 level, we’re very close to testing February’s high of $1.4980.

Gold was also placid overnight and we’ve dipped to the low end of the major trend line formed from the October 2008 low. Buyers have crept in but there’s a feeling that the price will have to push higher soon in order to maintain bullish momentum and test $1,000 once again.

Oil seems to be tracking equity markets at the moment and suffering it’s own little bit of profit taking as we have seen $1 taken off the price of a barrel this morning.

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'Spread Trading 25 Mar 09' edited by SD, updated 25-Mar-09

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