Equity markets were higher overnight on improved risk sentiment after the Governor of the central bank in China discussed plans to purchase treasury bonds in the Eurozone but little was mentioned in the way of specifics. The Euro managed to recover some of the losses seen earlier in the week and equity markets pushed higher, with the FTSE 100 printing fresh monthly highs. High yielding currencies were also pushed higher as markets reduce exposure in safe haven assets.
In Greece, the lack of negative headlines is being viewed as a positive (no news is good news). The latest Eurozone finance ministers meeting (scheduled for today) was cancelled and a tele-conference was rescheduled, so it will be interesting to see if any major decisions can be completed in this venue. It seems unlikely that another rescue package will be agreed-upon in this fashion, so markets might have to wait until next Monday’s formal monthly FinMin meeting of EU members before such an agreement can be released.
In the US, newspapers are reporting that the Congress has reached an agreement with respect to payroll tax cut extensions and unemployment benefits, which is seen as a positive because of the many points of contention that have blocked the passage of a congressional budget. The worst case scenario could have resembled the “debt ceiling” debacle from last summer, which had a massive weakening effect on the US Dollar and in regional equity markets.
In the UK, the Consumer Price Index (CPI) for the month of January CPI dropped to fell -0.5 percent (monthly) and +3.6 percent (annually), which was mostly inline with market estimates. The heightened inflation trends that were seen last year have now shown a clear reversal, with many expecting the CPI numbers to reach the central bank’s target level of 2 percent by the end of this year. Today’s inflation report will give some additional guidance for where this data is headed in the coming quarter. The most market moving surprise, however, would come with any mentions of possible quantitative easing stimulus.
Most of the attention on Wednesday, however, will remain on the Eurozone tele-conference, along with macro releases, which include GDP figures from both Germany and the Eurozone, UK employment figures and the Bank of England (BoE) Quarterly Inflation Report. This will be followed during the US session by the release the FOMC minutes from the latest monetary policy meeting.
The GBP/USD is rolling over from its recent highs, with prices showing their latest failure at 1.59, which marks the third lower high seen in this latest bear move. Longer term, we do have positive indicator readings on the MACD, which is supportive, but the bias will not turn bullish unless we see a break of this 1.59 area. Medium term shorts can be established here with stops above our resistance level.
The FTSE 100 broke the topside of the range we mentioned yesterday and the index is now firmly focused on a test of key long term resistance at 5930. We are approaching extreme levels on the longer term time frames (with very little in the way of retracement) so we will take a contrarian view on approach of this level and enter into sell positions. A break of 5930 suggests levels above 6000.