Equity markets and risk currencies fell another leg lower overnight as traders continue to show skepticism for the current EU debt strategy. Part of the problem is that the results from last week’s Summit meeting will still need to be ratified by the individual governments within the EU and there is still a possibility that these measures will not pass with clear voting majorities.
Other potential negatives come from the seemingly endless rumors that the credit ratings of both private banks and sovereign entities will see downgrades from the major agencies. All of these factors together are outweighing the positives (at least in terms of headline space in the news), so at the moment we are missing a clear catalyst for a rally in stock markets.
Today’s major event will come with the Federal Reserve monetary policy meeting and since this is the last FOMC meeting we will see this year, there is likely to be a more detailed policy statement than what markets usually receive. There is no expected change in interest rates, so the most likely scenario is that the Fed will look to communicate its bias to the market with respect to domestic growth prospects and the contagion effects of the wider global slowdown.
Macro data from the US (along with corporate earnings) have showed steady improvement in recent months, so it would not be surprising to see some optimistic commentary to help stabilize equities for today’s trading. It should be remembered, though, that the full details come out when the meeting minutes are released, and this will not happen until the end of December.
The wildcard in all of this remains the Eurozone situation, however, so be watchful of any headlines discussing Fitch’s recent assertion that since last week’s EU Summit meeting failed to reach a decisive conclusion, the credit rating of each member in the Eurozone will need to be analyzed again next year. This follows comments from Moody’s which hinted at a potential two-level downgrade of French sovereign debt, so headlines continue to have the ability to sway market activity in the coming sessions.
The GBP/USD is now range bound and looking heavy on the hourly charts. For most of this month, prices have been caught between 1.5770 and 1.5550, with each area being tested twice so far. The 4H charts are now showing a fresh negative cross, however, and the lack of any meaningful rally from these lower historical lows suggests a break of support is imminent. Any downside break will target the late November lows at 1.5420.
The December rally in the DAX appears to be running out of steam as prices are now grinding through support at 5760. This latest move is coinciding nicely with the MACD’s negative cross, and so the break of historical and Fibonacci supports in this area should signal a much deeper move lower. Sell rallies, if given the chance. First resistance comes in at 5830 on the shorter term time frames.