Markets Lower on Corporate Earnings and Central Bank Decisions; S&P 500 Faces 1390 Resistance

Equity futures in the US are seeing some selling pressure as declines in earnings at Intel and IBM are highlighting the downside in the tech sector despite positive seen in the quarterly earnings report from Yahoo.  Intel dropped 3.5 percent while IBM fell 2.3 percent during the European session.  Berkshire Hathaway was also lower on the day as news reports circulated that the company’s Chairman (Warren Buffet) was diagnosed with stage 1 prostate cancer.  These losses were somewhat offset by the 3.4 percent gain in Yahoo but this was not enough to turn sentiment positive on the day.  The S&P 500 was down 0.3 percent during the session and the Dow lost 30 points to close below the 13,000 level.

In the UK, the British Pound was higher versus the Euro after the minutes from the last Bank of England (BoE) meeting showed that the voting committee showed a clear majority (8-1) to leave the country’s quantitative easing policy unchanged.  Some of the more dovish bank members have changed their stance at this stage, so markets are going to be less and less likely to believe any rhetoric suggesting the possibility of additional stimulus.  This change is positive for Sterling but negative for the FTSE 100 for the medium term.

In Sweden, the central bank (Riksbank) completed its monetary policy meeting, leaving interest rates unchanged at 1.5 percent.  This was widely expected but the bank did release a downward revision for its 2012 GDP forecasts.  This added to the downside pressure in equity markets during the European session.  The Bank of Canada also completed this month’s meeting, and the policy statement showed a more hawkish bias, with stronger inflation figures being a potential cause for policy tightening later in the year.

These forecasts could prove to be very influential for the Canadian Dollar (which continues to trade near parity in the USD/CAD) so it will be very important for Forex traders to watch Canadian GDP forecasts for potential revisions in the quarterly Monetary Policy Report.  Suggestions of interest rate increases would be very bullish for the CAD, as most central banks are viewed as having much more dovish policy stances.

Technical Analysis:


The GBP/USD is seen trading with slowing momentum on the shorter term time frames, but when we pull out to the daily charts, we can see that prices are seeing higher highs en route to another test of resistance at 1.6140.  Indicator readings in both the MACD and RSI are flattening out at mid levels, and this is suggestive of a strong break once the smaller trading ranges are broken.  To the downside, first support comes in at 1.5820, as this is also where the 100 period EMA now rests.  A break here targets 1.5630 initially.

The S&P 500 is rolling over from what is now a double top in the 1390 area.  This level also comes in near the 61.8% Fibonacci retracement of the latest decline on the shorter term time frames so if we do see a break of these levels, will eventually target a drift back to 1420.  Bears are favored though at this stage, with the next support level seen at 1360.  A break here should accelerate losses through the next half-figure.