Equities and forex markets are trading with a sideways slant as markets get started on Monday as investors remain widely bearish but in a difficult position with respect to adding to new entry levels. The recent declines in stock prices and in high yielding currencies does look like it needs some upward retracement before further moves to the downside can gain any real momentum, so many are approaching new position entries with a cautious tone at this stage. There was some slightly strength in equities and some weakness in the US Dollar to close the week last Friday but risk to reward levels are still unfavorable and new short positions run the risk of seeing a short-term snap higher.
Over the weekend, the latest G8 communique was released, which showed a desire to make sure that Greece is able to remain a part of the European Monetary Union but there was little said with respect to the implementation of previously agreed upon austerity measures. This lack of commitment to one side or the other will likely leave markets in flux to start the week, as we will see little in the way of macroeconomic data in the next few days.
There were some moderately positive headlines out of Greece this weekend, as the Bank of Greece made comments saying that there would be mo limitations placed on the deposit withdrawals that will be accepted by private banks. Last week, deposit withdrawals reached extreme levels but apparently the Bank of Greece is attempting to calm investor sentiment and reiterate the fact that private depositors will continue to have access to their savings.
Relative to the next Greek elections, the latest polls are showing that the SYRIZA party (which opposes austerity programs and is viewed as the “anti bailout party”), is losing some of its popularity, with the “pro bailout” New Democracy party starting to gain a majority position. These poll numbers could start to be a focal point for markets, as any evidence that we are starting to see political cohesion (and a commitment to fiscal austerity) will help to reverse some of the recent losses that have been seen in global equity markets. At this stage, investors are looking to remove uncertainty in any way possible and a discernible trend in Greek voting activity could easily be a catalyst for this.
Technical Analysis:
The USD/CHF continues to press higher even with the daily indicator readings still suggesting that there is much more room to the upside. Given the proximity to historical resistance, however, long positions are not advised. Instead look for a retracement back into resistance turned support, at the 0.9340 level, targeting a break to new yearly highs. A break below 0.9340 suggests a short term period of consolidation.
The S&P 500 is seeing some heavy downward momentum and we are now seeing prices fall to the 38.2% retracement of the rally to 1420. Aggressive traders can look to take contrarian buy positions into this level but stops should be kept relatively tight, as the overall momentum is clearly to the downside. 1200 is seen as a better entry level for long term bulls.
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