Spread Trading 31 Jan 11
Spread Trading 31 Jan 2011
Geopolitical tensions in the Middle East are never a good thing for financial markets and last Friday we saw just how they can affect oil prices in particular.
The US crude oil spread betting market jumped from $85 to $89, at one point rallying over a Dollar in 10 minutes. This understandably brought the sellers out in equity markets so this morning weíre seeing further weakness for the FTSE, albeit slightly better than where we were calling the market to open overnight.
The unrest has been going on for days and will continue well into this week unless there is a change at the top of Egypt. For now the military havenít got involved which has led to a swathe of lawlessness, but the fear is that if they do the death toll could be made even worse.
Thereís no question that the demands of the people for regime change need to be met, but the fear that the result would be a less friendly ďallyĒ of Israel could put further upward pressure on oil prices.
The higher oil prices are not having the usual effect on the FTSE which you would expect to actually gain, with the oil majors seeing buyers. In contrast, this time the rises are for different reasons so the sell off is a broad one with only the utility sector making a little bit of ground.
We had been calling the FTSE as low as 5800 first thing on Sunday evening, but weíre some 30 points better than that now, having been higher in earlier trade.
With the bullish trend still evident the temptation is to buy at these levels particularly since the declines have been as much as 4% so far. However, many financial spread betting investors will be happy to sit on the sidelines for as long as the Egypt issue plays out for fear of trying to catch a falling knife.
The FTSE has been knocked from its highs more than many other indices, such as the Dax and Dow, so thereís a fear that if these indices see similar weakness to the FTSE the London marketís declines may have further to go.
The 5800 level is crucial as itís the upward trend line for the market ever since this rally commenced in July, so a break below here could spell further weakness to around 5520 or even 5400 over the medium term.
Economic data comes in the form of US personal income and spending at lunchtime, both of which are expected to show a healthy rise. Then the Chicago PMI is released which is due to remain well above the 50 mark suggesting expansion for manufacturers.
Currency markets are relatively quiet this morning with a hint of Dollar negativity after feeling the bout of risk aversion on Friday. Cable is drifting sideways just above $1.5800 and EUR/USD is just above $1.3600.
For EUR/USD $1.3535 and $1.3465 are important levels to the downside and, in order to persuade bulls its rally isnít over, it needs to get back above $1.3675. For Cable $1.5825 and $1.5775 are important.
The gold spread trading market unsurprisingly bounced aggressively off lows and almost finished the week back above $1350. Still, the risk aversion this morning is also putting pressure on the price of the precious metal which is 6 Dollars softer at $1333.
Goldís retracement has just come to a brief half but traders will be keeping an eye on $1318 and $1307 to the downside, meanwhile $1347 to the upside is resistance.
As mentioned crude was the exciting market to watch late on Friday as it spiked dramatically. Brent was just a whisker short of recording three figures, hitting a high of $99.90 overnight, and is softer this morning at $98.90. All eyes will be on events in the Middle East and this will be the determining factor for oil prices in the coming days.
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'Spread Trading 31 Jan 11' edited by SD, updated 31-Jan-11
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