Markets Drift Higher Despite Multiple Bank Downgrades; S&P 500 Faces 1230 Resistance

The US Dollar gave up some of its recent gains in overnight trading after improvements in global macroeconomic data helped market sentiment and bring buyers back into equity markets.  In the Eurozone, we saw the Purchasing Managers Index for manufacturers surpass market expectations and this optimistic tone was carried over into the Treasury bond auction in Spain, which was met with strong levels of demand (keeping yields at the lower end of an elevated range).  Similar results were seen with the US macro releases, as regional industrial surveys (from New York and Philadelphia) showed increases in productivity, and initial jobless claims continue to decline.

Currently, FTSE 100 futures are pointed toward a higher open and with no top tier macro releases on schedule today, it would not be surprising to see a slow drift higher after the carnage the index has experienced in recent weeks.  There is a possibility, however, that the financial sector will be the laggard after Fitch downgraded Barclay’s long term credit rating by two levels (From AA- to A).  There are no major corporate earnings releases in the UK today, so markets are likely to follow any headlines generated by EU finance officials.

In Japanese equities, Sony Corp. is seen higher on strong pre-Christmas orders for PlayStation units while Olympus Corp. continues to see declines on the headlines created by repeated failures to attract sufficient levels of investment capital.  The Nikkei 225 index, as a whole, continues to trade just above the 8400 level, with momentum essentially flattening out in recent weeks.  Some of this lack of market conviction is being supported by comments from China’s Commerce Ministry, which has publicly stated that they expect export markets to show declines through the end of next year.

Today, we will see some key macro data out of the US, as November consumer prices (CPI) will be reported.  There are no major earnings releases but headlines were made yesterday when Adobe Systems reported strong profits for the fourth quarter and the company’s stock price surged nearly 6% during the aftermarket session.  The opposite was true for Research in Motion (RIM), however, as earnings missed market expectations and fourth quarter revenue forecasts were revised lower.  RIM stock dropped nearly 8% after the release.

One point to remember is that traders should remain watchful for any private bank downgrades as the Barclays story (along with similar stories from Bank of America, Goldman Sachs, Credit Suisse, BNP Paribas and Deutsche Bank) could continue to influence market sentiment and bring sellers back into equities and risk currencies. The financial sector is particularly vulnerable in these cases, and could provide some short opportunities if these types of stories continue.

Technicals:

The AUD/USD continues to look bearish in the longer term but the bounce from the end of November has created a symmetrical triangle so we should see some more consolidation before another major run lower.  The key resistance level is the 61.8% Fibonacci retracement on the daily charts, so until we see a break here, our bias is to the downside.

The S&P 500 is caught in a downtrend channel on the hourly charts but prices are rising to test the downtrend resistance in the 1230 region.  This level coincides with the 100 period EMA on the 4H charts, so the current short term rally could face some obstacles soon.  MACD readings are supporting of the argument that the EMA resistance will hold, so short positions could be set in the coming session.

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