Risk aversion is the main theme in markets today, with the Euro trading lower ahead of some key regional macro data. Later today, we will see the release of Eurozone GDP for the fourth quarter of 2011 and the market consensus is calling for a contraction, relative to the previous report. Many traders are squaring positions into the release as the data will help markets understand the extent to which the European debt crisis has actually effected the economy into the close of the year.
Stock futures are also modestly lower in the UK, with the main data coming with the Halifax Housing Price Index, and this will be followed by corporate earnings releases from John Wood Group, Fresnillo, Meggitt, and Tullett Prebon. Futures are also pointed to a negative open in the US, as there are no major macro releases in the region today and sentiment will largely be guided by the reaction to the Eurozone GDP figures.
Equity markets, however, should see some additional volatility after earnings reports from Analogic Corp., United Natural Foods, and Vail Resorts release their profit statements. In addition to the Eurozone GDP figures, we will also see Household Consumption numbers, Key Gross Fixed Capital, and Government Expenditure. This will come before corporate earnings from Merck KG, Topdanmark and Thales.
Overnight, the main story was the monetary policy meeting with the Reserve Bank of Australia, where interest rates were left unchanged at 4.25 percent. This is the second month in a row that the bank has decided to leave rates steady and markets have begun to price-in fewer rate cuts in 2012 based on the accompanying statements released after these meetings.
This time, the central bank suggested that a more accommodative policy rate could be seen in the future if macroeconomic data warranted additional cuts and with this, market analysts will likely start to show divided opinions for interest rate expectations into the end of this year. Because of this, data releases (particularly consumer inflation numbers) are going to take on more importance as markets look for guidance in the next move from the RBA. Yesterday, we did see that the Current Account Deficit in Australia widened to 8.4 billion Australian Dollars for the fourth quarter of 2011, as exports to Asia dropped amidst the wider global slowdown. With this uncertainty factor (the next move by the RBA) it would not be surprising to see more volatility in the AUD than most of the other majors until interest rate expectations are seen solidifying in the market consensus.
Price activity in the EUR/USD is poised for further losses with the hourly uptrend channel being broken in today’s trade. This signals that a medium term top is now in place just below 1.35 and we expect prices to be contained there going forward. Downside targets are now seen at 1.2980, but prices are unlikely to break the 1.30 area on first test. Selling rallies is the preferred strategy.
The S&P 500 is starting to turn negative with prices now pressuring trendline support in the 1360 region. A downside break and hourly close below this level turns the bias bearish for the trading day but the main level to the downside is slightly lower at the 1350 historical support level. Stop losses likely rest underneath this region, so we expect losses to accelerate if this level doesn’t hold.