Risk sentiment was lower in Asian trading as markets are starting to price-in the possibility that Greece will be unable to finalize its next loan agreement before treasury bond redemptions are scheduled to be repaid. Some of this pessimism is coming from comments by Eurozone Finance Minister Juncker, who suggested that decisions would need to be made next week with respect to the implementation of specific austerity measures and that there is some reluctance on the part of the Greek government to meet the demands of the rest of the Euro member nations. At this stage, it is becoming apparent that Greece will be provided with enough money to repay its bondholders but that other types of aid will be withheld until Greece accepts the programs suggested by the Eurogroup Finance Ministry.
In the US, the main story was yesterday’s release of the FOMC minutes from the January monetary policy meeting, which showed that some of the voting members in the Federal Reserve still believe that quantitative easing should be undertaken (in the form of official asset purchases). It should be remembered, however, that this continues to be a minority view and the other voting members are making fewer and fewer mentions of this as a real possibility. At this stage, markets would need to see some significant changes in the economic data before equity markets see any real lift based on government stimulus injections.
We did see some positive macro data out of Australia overnight, where jobs numbers were much stronger than the consensus estimate and the unemployment rate was also seen lower at 5.1%. Any rallies were brief however, as markets remain focused on Greece and headlines there continue to be the main influence on global stock markets. Macro data out of Europe showed that fourth quarter GDP in the Eurozone showed some improvement (through still in negative territory), coming in at -0.3% on a quarterly basis. This improvement was not matched in Italy, however, as Q4 GDP dropped by -0.7%.
In the UK, the BoE quarterly inflation report showed that the central bank expects CPI to fall to 1.8% in the next 2 years. The projection is significant because this number is below the bank’s target inflation rate, and this would leave some flexibility for additional rounds of quantitative easing stimulus in the region. Jobless claims for the month of January increased by 6,900 (higher than the market estimates) but the claimant count rate held steady at 5 percent. Average weekly earnings were positive, showing a rise of 2.0 percent.
The EUR/USD is showing a sharp reversal on the hourly charts, with prices now grinding through support in the low 1.30s. We have seen new lows below this key psychological level and a daily close here will be a very ominous longer term signal and suggest a much larger drop targeting 1.2610. MACD readings are bearish and now firmly in negative territory so there are essentially no bullish arguments when looking at the 4H charts. Sell rallies if given the opportunity.
The S&P 500 is starting to show some bearish candlestick formations and this could be the initial signals of a bear correction after a massive rally throughout this year. We see a confluence of trendline support and historical resistance levels (previously broken) and we expect a test of this area before prices can attempt another run higher. Short term buys can be taken at 1320 but using tight stops as a break here would remove the bullish longer term bias.