Spread Trading 4 Feb 11
Spread Trading 4 Feb 2011
Economists have been left scratching their heads after seeing the strong PMI data for both the UK manufacturing and services sectors following the terrible Q4 GDP numbers last week.
The figures released on Tuesday and yesterday are encouraging to say the least. They go some way to indicate that the UK economy is still expanding and we should expect as a minimum upward revisions to the GDP figure as more information becomes available in subsequent releases.
Most importantly we should avoid a double dip.
As a result Sterling has had a good run higher on the forex spread trading markets in the last few days, even if Cable suffered a little profit taking yesterday. Against the Euro too Sterling has bounced strongly off the €1.1600 level to form a bit of a double bottom.
Markets are slightly flat to positive this morning with the FTSE flirting with 6000 following comments from the Federal Reserve Chairman last night that lifted US stocks, albeit by just a small amount.
We may not see much action from the markets ahead of the US employment numbers due out at lunch time.
The NFP data is the major focus of the day and market expectations are for a figure of around 120-130k. It should come as no surprise to see the actual release better than this as yesterday saw good initial jobless claims and Wednesday’s ADP employment number surprised to the upside.
The unemployment rate will also be eyed closely as it’s expected to tick up from 9.4% to 9.5%, however this is following December’s large fall from 9.8%.
All in all it amounts to decent improvements within the US labour market, but these jobs creations have to be maintained for a substantial amount of time, if they’re not improved, in order to have any meaningful impact on the rate of unemployment. As the Fed Chairman mentioned last night, it’ll be several years before unemployment in the US is back to normal levels.
The Euro / Dollar spread betting market took an uncharacteristic, at least over the last few weeks, nose dive yesterday after failing to hold onto $1.3800 and crashing through $1.3700.
At the end of the day it finally settled around $1.3640 and is at $1.3625 this morning. Trichet was less hawkish with his comments yesterday so this took the wind out of the Euros sails as the reality dawned on traders that he won’t be raising rates anytime soon.
Of all the central banks around the world the ECB has been the least prolific in its interest rate policy. It currently holds a range of under 4% between its high and low over the past 12 years as opposed to the BoE and Fed which have seen a range of roughly 7% in the same time.
The support at $1.3755 gave up the ghost with rather too much ease and then we saw the sharp continuation of declines. As a result, today the key levels to watch are $1.3600/3570 and $1.3540/30, with $1.3700 and $1.3750 to the upside being resistance.
As mentioned earlier Cable has had a very good week but is below the highs of yesterday trading at $1.6165 this morning. Key levels to watch are $1.6220 and $1.6280 to the upside and $1.6050 to the downside.
The recent Dollar weakness has finally led to a move by gold spreads to test the $1350/2 area. Bernanke’s comments were also supportive of strength for the precious metal as he kept the prospect of further support for the US economy alive.
At $1350 this morning the gains have stopped at the near term resistance but a break above here could see gold test the mid $1370s. $1325 is now a decent support area.
Crude oil spread betting prices just pulled back a little yesterday as traders factored in the possibility of oil overshooting slightly in the last week. Profit taking was definitely the order of the day but Nymex remains above $90 at $90.90 this morning and Brent is at $101.70.
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'Spread Trading 4 Feb 11' edited by SD, updated 04-Feb-11
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