January 2010

European Stock Exchanges Position to Resume Decline

WEEKLY STRATEGY

FTSE 100

Long-term Technical Outlook

The FTSE continues to work higher and has surpassed its 61.8% retracement of the decline from the 2007 high. The next level of potential resistance is the August 2008 high at 5649. A Fibonacci extension at 5811 would be the following objective. There is channel resistance at 5742 this week (increases 35 points per week).

Short-Term Technical Outlook

FTSE near-term positioning favors the downside as prices trend lower in a falling channel. Near-term resistance is seen at 5511.66, the channel top, while support is found in the 5440.22-5455.37 congestion region. A below this barrier exposes 5390.58.

DAX

Long-term Technical Outlook

Having held trendline support throughout the fall and winter, the DAX is nearing potential resistance from an extension (100%) at 6113. That level is where there are 2 equal legs higher from the March low. The 61.8% retracement of the decline from the 2007 high is also potential resistance. This level is reinforced by the surrounding congestion zone.

Short-Term Technical Outlook

German shares have trended lower since breaking below rising trend line support, with price action guided by a well-defined falling channel. Prices have come off the bottom of the formation to re-test support-turned-resistance at 59350. Renewed bearish momentum from here will target another test of the channel’s lower boundary, this time at 58452.

CAC 40

Long-term Technical Outlook

The CAC 40 is testing a resistance line (drawn off of highs in 2007) this week. Exceeding this line would shift focus to the 50% retracement at 4317. The rally from the March low is in 5 waves (not labeled) and is therefore the first wave in a larger multiyear correction.

Short-Term Technical Outlook

As with its German counterpart, the CAC has broken below rising trend line support and is being guided lower by a falling channel. A bounce from the channel bottom has stalled below support-turned-resistance at 3979.15, with renewed selling to target 3933.91.

IBEX 35

Long-term Technical Outlook

The IBEX looks most like the US indexes (especially the S&P) in that the index has broken higher from months of sideways trading. This in itself is bullish but there is potentially strong resistance at 1247. This is both the 61.8% of the decline from the 2007 high and the 100% extension of the first leg of the rally from the March low. Watch the underside of the former support line for resistance. The line is at 1278 this week and increases 14 points per week.

Short-Term Technical Outlook

Madrid issues are positioned broadly in line with the DAX and CAC: prices have taken out rising trend line support and are trending lower bounded by a falling channel. Near-term support has been found at 1185.46, the 50% Fibonacci retracement level, with an upswing to aim for the 38.2% Fib at 1194.56. Alternatively, a break lower exposes the 61.8% Fib at 1176.35.

S&P/MIB

Long-term Technical Outlook

In October, the FTSE/MIB reversed from the 38.2% retracement of the decline from the 2007 high and subsequently fell beneath trendline support. The high has held but the decline is not impulsive. A move through 24568 would expose former support at 26464. Watch the underside of the former support line for resistance. The line is at 24979 this week and increases 294 points per week.

Short-Term Technical Outlook

Italy’s benchmark index seems to be stalling behind its counterparts in Germany, France and Spain. Indeed, while those indexes have broken lower, the FTSE/MIB continues to test rising trend lie support, with the hurdle reinforced by the 23.6% Fibonacci retracement level. Nonetheless, cues from other major exchanges suggest the path of least resistance leads lower, with the next level of relevant support on a breakdown past current levels found at the 38.2% Fib (23040.84).

Oil Positioning Warns of Downturn, Metals to Trade on Earnings Data

Commodities – Energy

Crude Oil Technical Positioning Warns of Major Downturn Ahead

Crude Oil (WTI)       $78.33        +$0.33       +0.42%
Oil prices consolidated in a narrow range between $77.67 and $78.48 in thin holiday trading around the Martin Luther King Jr. Day holiday, although a large Bearish Engulfing candlestick formation and negative RSI divergence on the weekly chart hints that a significant downturn is ahead. The correlation between crude and risk sentiment remains significant (74.8%), so tomorrow’s fourth-quarter earnings reports from Citigroup and IBM may prove market-moving. The economic calendar offers only peripheral releases, with the NAHB Housing Market Index being the only item of interest considering the US construction industry is the world’s largest crude consumer. Expectations call for the metric to rise to 17 in January from 16 in the previous month. Some secondary fallout may also come from commentary surrounding Canada’s interest rate decision considering the country is the foremost oil supplier to the US.

Commodities – Metals

Gold, Silver Look to Earnings as Key Catalyst on Risk Appetite Correlation

Gold       $1136.98       +$3.38       +0.30%
Gold prices rebounded from rising trend line support, with near-term resistance lining up at $1143.54 from here. The correlation between gold and the MSCI World Stock index is now at a whopping 96.3%, suggesting tomorrow’s fourth-quarter earnings reports from Citigroup and IBM are the key items to watch in the near term. The former is of particular interest after analogous figures from JPMorgan sank risk appetite last week despite beating profit estimates as revenues disappointed. This hints that the blind optimism that held sway over financial markets through much of last year may have given way to a more cautious posture, with investors increasingly concerned about the continuity of economic recovery absent fiscal and monetary stimulus. This means that a good earnings outcome at this point requires revenue growth, not just profits achieved on the back of cost cutting (and in the case of the financials, trading amid market volatility).

Silver       $18.74        +$0.10       +0.51%
Silver broke through resistance at the top of a Triangle bullish continuation pattern, clearing the way for a move to test near-term swing top resistance at $18.90. The correlation between prices and the MSCI World Stock Index is at a formidable 93.3%, so as with gold, the earnings calendar is likely to be the primary catalyst for the near-term.

U.S. Markets Closed Today For Martin Luther King Holiday

U.S. Session Key Developments

U.S. stock markets were closed today for Martin Luther King Day, a day of relief following a tough finish to trading last week.  On Friday, stocks took their biggest step back in a month after consumer confidence fell short of expectations and JPMorgan reported some unexpected losses in the fourth quarter.  Going forward, there is a plethora of data on the economic docket this week to help drive market sentiment.  Tomorrow, the National Association of Home Builders will release its Housing Market Index, which likely rose to 17 in January, from 16 the month prior.  This indicator will be closely monitored given the plunge in pending home sales on January 5.  Further driving action tomorrow will be Treasury auctions of 4-week, 3-month, and 6-month bills.  On the earnings front, look for Citigroup’s fourth quarter earnings as well as McMoRan Exploration Co.

DJIA 30                      10,609.65                   –.–               +-.–%

S&P 500                         1,136.03                    –.–               +-.–%

NASDAQ                       2,287.99                   –.–               +-.–%

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

Crude Oil Rises for the First Time in Six Days on Thin Liquidity

North American Commodity Update

Commodities – Energy

Crude Oil Rises for the First Time in Six Days on Thin Liquidity

Crude Oil (LS NYMEX) -  $78.25  //  $0.25 //  0.32%

Constrained liquidity helped crude traders snuff out a burgeoning bear trend Monday. With the US market offline for a bank holiday, the benchmark oil contract was able to post its first bullish close in electronic trading in the past six trading days. However, it is because of this limited speculative interest that we have to take this opening move with a grain of salt. Nonetheless, there were fundamental considerations to work with for those that were still trying to make trades in the thin market conditions. First and foremost, for those that are monitoring inter-market correlations; modest dollar weakness through the day encouraged a tempered strength from the speculative asset. On the other hand, it bears mention that the benchmark currency has not defined a clear direction for itself in nearly a month. Considering the greenback’s association to underlying sentiment and its role as the primary pricing instrument for commodities, it is worthwhile to await a clear bearing on this instrument before marking a definitive trend on oil.

Through more mundane and definable channels, supply-and-demand fundamental would also be in play Monday. In the early trading ours, China Oil, Gas & Petrochemicals issued forecasts for Chinese imports to increase up to 15 percent through 2010 as the nation enters the second phase of its plan to build strategic reserves. Perhaps more influential however were remarks from the Qatar Energy Minister who speculated the Organization of the Petroleum Exporting Countries (OPEC) would not raise output through the year, as current supply levels would be sufficient. However, looking through the rest of the week, output and consumption considerations may not work in bulls’ favor. This past week the Department of Energy reported a 3.699 million barrel increase in crude inventories despite frigid temperatures that would have theoretically boosted demand. Should this week’s stockpile report (due Thursday) issue another increase in holdings, it would be a sign that excess capacity can easily fill in should a temporary spike in demand present itself. The level of true fundamental demand is important to set against speculative interest as well. This past week, the CFTC’s Commitment of Traders update reported speculative long positions hit their highest levels since 1983 (at 135,669). Is this a leading indicator or simply a lagging reaction to the aggressive run up through the opening week of January?

Commodities – Metals

Gold Gears Up for Possible Breakout as Liquidity Fills out and Speculation Recovers

Spot Gold  -  $1,133.60   //  $2.68 //  0.24%

Though there was plenty of activity in speculative markets through the Asian and European sessions, gold as little moved through Monday’s session. Considering the terminal congestion pattern the commodity has worked its way into over the past few weeks, it comes as little surprise that traders would defer a decision on market direction for when US liquidity is back on line. As for background fundamentals, there was plenty for traders to contemplate through today’s restrained session. At the front of traders’ minds was the modest decline in the US dollar. As for speculative interests, there were moderate trends developing amongst the larger indices in the world’s more liquid markets – though they would essentially offset each other. Asian equities would tumble on the day with the Nikkei leading the way with a 1.2 percent slump through the opening day. In contrast, European indexes were on the rise with a 0.72 percent advance from the FTSE 100.  Looking ahead to deeper and more active markets for Tuesday, we may actually see the metal’s function as an inflation hedge come into play. This morning, Australian consumer and UK housing sector inflation figures boosted price pressures. Tomorrow, UK and New Zealand CPI indicators will add to the mix. However, everything considered, speculative interests hold the greatest potential for volatility.

Spot Silver  -  $18.64 //  $0.23  //  1.25%

Silver would work its way even further into a congestion pattern Monday with thin trading discouraging a clear bias on price action. That being said, the return of market depth Tuesday could encourage a rebound in volatility. If there is in fact an increase in activity, there is little room for this metal to move before spot threatens a potential breakout. Speculative traders will be particularly sensitive to volatility through the first full trading day of the week and will look to key market benchmarks (like The Dow and US dollar) for guidance.

Discuss gold and oil trading with other traders in the DailyFX Forum

Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

European Equities Rebound Ahead of Earnings Week

Europe Session Key Developments

•    British Housing Market Showing Signs of Recovery
•    Italian Trade Balance Suffers
•    Trading Volume Lighter Ahead of Inflation Data

European markets moved higher on Monday on speculation of better-than-expected earnings later this week from banks across the globe, a strong indicator of which direction global financials will move towards over the next few months. Data proved light on the day with markets closed in the United States for the Martin Luther King, Jr. Federal holiday, though bullish sentiment prevailed ahead of data releases later this week. Highlighting the rebound were data from Britain that showed a rebound in price in the housing sector, which has been mired in its worst slump of the past 25 years. Elsewhere, the Euro continued to falter against the Dollar regarding the debt situation in Greece, resulting in finance ministers from 16 European nations to meet to debate whether or not a currency intervention may be necessary. However, given the recovery state of the broader euro area economy, the European Central Bank’s Nowotny was quoted in an interview later in Monday’s session as saying that a currency intervention remains unlikely.

FTSE 100                      5494.39                   +39.02               +0.72%
British stocks advanced on Monday as nine of ten sectors rebounded following the first weekly decline in 2010. Basic Materials and Consumer Goods led the resurgence, up 1.75 percent and 1.27 percent each. Markets were boosted in the premarket as the Rightmove House Prices gauge showed 0.4 percent increase in house prices from December, while up 4.1 percent from January 2009. Despite this, Taylor Wimpey, Britain’s second-largest home builder, fell 2.1 percent on news that it sold fewer homes last year following the worst housing crisis in Britain in 25 years. Tullow Oil gained 2.2 percent after it announced it would move to purchases assets from Heritage Oil. Other winners on the day included Cadbury, which gained 1.8 percent after Kraft Foods said it was considering raising its bid for the chocolate company.

CAC 40                     3977.46                   +23.08                 +0.58%
Trading on the French exchange led to a gain just over 23 points, up 3977.46. Seven of ten sectors gained, with Oil & Gas climbing 1.60 percent. Alcatel-Lucent dropped 1.7 percent after two consecutive days of gains. Following two consecutive days of losses, L’Oreal, the world’s biggest cosmetics maker was raised to “buy” at Deutsche Bank. Other gainers on the day included PPR, up 1.9 percent to its highest level since October, while Zodiac Aerospace jumped 5.4 percent, its first gain in five days.

DAX                         5918.55                    +42.58             +0.72%
German stocks rose the most among the five major European equities, advancing 0.72 percent for its biggest gain in two weeks. As corporate earnings are expected to show improvement given the releases due over the next week, the DAX rebounded after lasts weeks losses, which were the worst losses since October. Ahead of the earnings, six of nine sectors gained, with Basic Materials and Consumer Goods rising the most, up 1.54 percent and 1.35 percent, respectively. Telecommunications was the only sector to drop more than one percent on the day. Continental, the second-largest European auto-parts manufacturer gained 3.2 percent on Monday after it was upgraded to “outperform” at Credit Suisse. BMW, the world’s largest maker of luxury automobiles, gained 1.5 percent, while Daimler rose 1.7 percent.

IBEX 35                     11870.70                   +25.70                 +0.22%
Following choppy trading last week, the Spanish index rose for only the second time in three days, up just under one-quarter of one percent on Monday. Six of ten sectors posted gains, with Technology suffering the most, down 1.03 percent. Consumer Services gained the most, up 0.71 percent during trading hours. Banco Espanol de Credito fell 1 percent as data showed that the number of bad loans in November rose from the same period in the previous year. Grupo Tavex surged 11.0 percent, pushing its total gains for the month to 41 percent. Spain’s biggest airline Iberia lineas Aereas de Espana gained for the fourth consecutive day as it was upgraded to “outperform” at Credit Suisse.

S&P/MIB                        23509.76                     +37.65                 +0.16%

Notable Europe Event Risk / Economic Releases

Written by Christopher Vecchio, CFDTrading Research
Please send any comments about this report to Cvecchio@fxcm.com

Euro / Dollar Resistance at 14450

Euro / US Dollar

With 3 waves up from 14216 (as well as the advance reversing at the 38.2% retracement level of the decline), respect the potential for the next bear leg of the decline from 15144.  Near term resistance is 14445 and 14490.

British Pound / US Dollar

GBPUSD resistance stretches from 16415 to 16481 and short term Elliott channel warns of a top.  As mentioned many times last month, I am looking for short entries as price action since May 2008 may be carving out a diamond top.

Australian Dollar / US Dollar

The decline from just above 9400 counts well as an a-b-c decline with wave b as a triangle and the succeeding rally from 8731 has extended into 5 waves.  Price pattern suggests that the larger trend is still up.  Near term, the decline from 9332 did not even extend to the prior 4th wave low so the rally from 9165 may be just a b wave rather than the beginning of the next leg up.

New Zealand Dollar / US Dollar

The NZDUSD is in the exact same position as the AUDUSD (5 waves up…anticipating a correction).  Initial support is 7285.

US Dollar / Japanese Yen

Coming under 9079 creates overlapping waves and suggest that the rally from 8481 is a 3 wave correction rather than the first 3 waves of an impulse.  As such, the decline from 9380 is either wave A or 1 of a bearish sequence.  The advance to 9207 serves as either waves B or 2 therefore the decline is expected to extend in wave C or 3.  An initial objective is 8900.

US Dollar / Canadian Dollar

With the USDCAD failing to immediately extend losses below 10250, we must entertain the idea that the decline from the December high is an ending diagonal.  The diagonal would potentially complete the entire decline from 13068.

US Dollar / Swiss Franc

The USDCHF is in a bullish position.  If the rally from 9916 is in 5 waves (5th wave is truncated), then the decline from 10507 is a 2nd wave that is probably complete at the 61.8% retracement.  As such, a 3rd wave is underway, which is expected to accelerate its ascent.

Gold

Gold’s rally from 1075 is in 5 waves therefore the larger trend is probably still up (the bearish count would treat the 5 wave rally as wave C of a flat).  Near term, expect additional weakness with support at 1108.

Light Crude

Crude’s rally from 7083 may be complete as an impulse.  Crude just broke last week’s low, which should be respected as a potential reversal signal, especially given the extent of the rally in 2009.  Support is not until 75.10/65.

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary and trades at DailyFX Forex Stream.   Send requests to receive his reports via email to jsaettele@dailyfx.com.

Asian Stocks Mixed for Second Day Amid Growth Concerns, Falling Energy Prices

Asia Session Key Developments

• Crude Oil Falls for a Sixth Day
• BoJ’s Shirakawa Says the Central Bank Will Continue to Fight Deflation

Stocks in Asia/Pacific were mixed on Monday as investors held a cautious outlook for the global economy, with a warning from JPMorgan’s quarterly result, stating that it is too early to say losses on home mortgages and other loans have peaked. At the same time, the yen fell from a four-week high against the euro amid speculation that the Japanese central bank will keep rates near 0.10% subsequent to Governor Shirakawa announcing that BOJ will maintain its policy for fighting deflation. Meanwhile, Japan’s economic docket showed industrial production rose 2.2% in November from the month prior, marking the ninth successive advance, while Australia’s TD securities inflation reading accelerated to the fastest pace in nine months.

Nikkei 225                          10,855.08
The Japanese equity markets halted a two day advance on Monday, leading the Nikkei 225 to shed 127.02 points (1.16%) and close at 10,855.08. All ten components pushed lower on the day, with oil & gas leading the way, tumbling 2.11%, which was followed by a 1.67% decline in basic materials. Shares of Mitsubishi UFJ Financial slipped 1.58% after JP Morgan’s retail banking unit posted its first quarterly loss since the first-quarter of 2008, while Japan Airlines took a free fall of 28.57% to close at its lowest level since being listed in October 2002 after Transport Minister Seiji Maehara said the Enterprise Turnaround Initiative Corp will set the terms of agreement for the troubled airline. At the same time, Mitsubishi gave back 2.81% as Goldman Sachs lowered the company’s rating from “buy” to “neutral,” while Shinsei Bank slumped 4.65% as the Economic Times said the firm may sell its joint venture with billionaire investor Rakesh Jhunjhunwala to Daiwa Securities Group for approximately $10M.

Hang Seng                        21,460.01

Stocks in Hong Kong pushed lower for a third consecutive day, leading the benchmark equity index to fall 194.15 points (0.90%) and close at 21,460.01. All nine components traded lower on the day, and was lead by a 2.89% fall in technology. Shares of MTR advanced 2.06% as policy makers in Hong Kong approved plans to build a rail line which will connect the city with China’s high-speed rail network, while HSBC slid 1.60% as the bank redeemed 12% notes worth HK$6 million due in 2010. Moreover, PetroChina, the nation’s largest oil company tumbled 1.50% as crude oil prices extended the decline from the previous week, while Hutchison Whampoa added 0.09% as the company said it will keep its Sri Lanka Unit, but will sell others.

S&P/ASX 200 Index           4,911.10

Stocks in Australia traded higher on Monday for a second successive day, leading the S&P/ASX 200 to gain 11.50 points (0.23%) and close at 4,911.10. Three out of the ten components rallied on the day, with telecommunications rising 1.11%, while technology slid 1.46% to taper the advance. Shares of Woodside Petroleum slipped 0.86% on the back of lower energy prices, while Australia & New Zealand Banking Group advanced 3.30% as the bank is in takeover talks with fund manager IOOF Holdings. At the same time, Sims Metal, the world’s largest recycler of scrap metal tumbled 4.46% as the company was downgraded from “overweight” to “neutral” by JPMorgan Chase, while AMP pushes 1.23% higher on speculation that the company may price the main class of its mortgage-backed bonds to yield 135 basis points more than the one-month bank swap bill.

Notable Asian Session Event Risk / Economic Releases

Oil, Gold May Rebound in Thin Holiday Trade

Commodities – Energy

Oil Prices Find Support, May Retrace Higher in Thin Holiday Trade

Crude Oil (WTI)       $78.32       +$0.32        +0.41%
Oil prices broke through support at $78.48 to stage a shallow recovery from $77.67. Both the US economic and earnings calendars are bare with the markets closed for the Martin Luther King Jr. day holiday, leaving room for a corrective upswing. Indeed, thin liquidity around the holiday may boost volatility in the brief half-day trading period.

Commodities – Metals

Gold, Silver to Correct Higher Before Bearish Momentum Resumes

Gold       $1135.22       +$4.30       +0.38%
Gold prices rebounded from rising trend line support, with near-term resistance lining up at $1143.54 from here. Traditional catalysts are out of the picture with the US economic and earnings calendar is empty for the Martin Luther King Jr. Day holiday, so a corrective upswing seems likely in the near term.

Silver       $18.60       +$0.19       +1.00%
Silver technical positioning looks substantially more constructive than that of gold, hinting that a significant move higher may be on the way with prices setting up a Triangle bullish continuation pattern. That said, a definitive break above $18.65 is still required for confirmation, in which case the next level of resistance would line up at $18.90. Indeed, thin holiday trading conditions may amplify volatility just enough to generate a breakout.

Crude Oil’s Bear Wave Proving Just as Consistent as December’s Record Breaking Rally

North American Commodity Update

Commodities – Energy

Crude Oil’s Bear Wave Proving Just as Consistent as December’s Record Breaking Rally

Crude Oil (LS NYMEX) -  $77.93  //  -$1.46 //  -1.84%

Weather seems to have faded into the background as a primary fundamental driver for the crude market. With the Northwestern quadrant of the United States (which accounts for 80 percent of heating oil demand for the world’s largest energy consumer) experiencing a period of above-average temperature; a much-needed source of demand that could have filled in for the lingering effects of the global recession has disappeared. Without this critical balancing factor, concerns over tame speculative interests and the sheer glut of inventories in the market is once again weighing the market down to levels more consistent with the levels of the second half of 2009. Looking forward to next week, the principal concern for oil traders will be the bearings and drive behind underlying risk appetite. Friday’s losses were in no small part encouraged by the market-wide shift towards risk aversion – a move that subsequently bolstered the US dollar, oil’s primary pricing instrument. However, benchmarks for underlying sentiment (such as the Dow Jones Industrial Average and the carry trade index) have shown a consistent – if measured – advance through the past months. For another read on traders’ interest, the CFTC’s weekly Commitment of Traders report showed a 26,834-contract net increase in long positions to 135,669 contracts. To develop the next, lasting trend for this commodity, risk appetite itself has to develop a clear bearing.

However, this commodity isn’t running on speculation alone. As the gap between supply and demand close as the global recovery develops, basic fundamentals will start playing a more prominent role in underlying trends and short-term volatility. Yet, data shows us that the difference between levels of production and consumption is still extraordinarily wide. This past week, the Department of Energy’s weekly crude inventory reading reported a 3.699 million barrel increase in the period through January 8th – the biggest jump in nearly five months. For its own part, gasoline stores jumped 3.791 million barrels for the biggest back-to-back increase in June. Today, industry surveys have covered the other side of the market. The American Petroleum Institute (API) released figures that US fuel demand grew 0.6 percent through December from the same period a year ago to 19.3 million barrels. Overall, consumption averaged 18.72 million barrels per day – a four percent drop from the previous year. The International Energy Agency (the DoE) updated its projections for global demand through 2010. While the 86.3 million barrel projection was unchanged from the previous month, it was up from the 84.9 million estimate for 2009.

Commodities – Metals

A Crack in Risk Appetite and Rally in the Dollar Prove more Influential for Gold than Inflation

Spot Gold  -  $1,128.50   //  -$14.55 //  -1.27%

Gold eased back to close the day near the middle of the range the commodity has carved over the past few weeks. Clearly, traders are approaching the metals swings with a greater degree of caution than what was customary through 2009. For fundamental drive Friday, market participants pitted the commodity’s roll as a dollar hedge and inflation hedge against each other – and the ultimate consensus is that the greenback’s influence would come out on top. Starting in the early Asian session, the US currency mounted a considerable rally against the euro and the rest of the market would follow. As the sessions wore on, risk appetite would eventually follow suit with a drop from equities and other risk-based markets. There was an opportunity however for a recovery based on price pressures, which traditional turns investors away from fiat currencies to physicals. However, this data proved less than effective as rousing demand for gold – despite inflation readings that were significantly bolstered by money supply growth as well as pull through demand. According to the US government, US consumer-based price pressures accelerated to a 2.7 percent annual pace. This was the fastest pace since October of 2008, though energy prices accounted for a considerable percentage of this increase. Much more tame were the European inflation rates. The Euro Zone CPI figure for December rose to a 0.9 percent annual rate – well below the central bank’s target. As for speculative interest, the COT numbers showed a net 1,575-contract increase in speculative holdings to 229,342.

Spot Silver  -  $18.38 //  -$0.29  //  -1.55%

With risk appetite on the decline and the dollar recovering lost ground, silver would see a drop through Friday’s session. However, putting this single day’s action into perspective, the commodity is still cultivating the bullish trend that has been in place for the past two weeks. This suggests that metal traders are ready to respond to a clear drive in risk appetite should one evolve in the near future. On the other hand, with each passing day that sentiment fails to catalyze, the commodity will grow increasingly sensitive to short-term drivers that wear on spot. Looking to the COT release, the net long position among speculators grew 6,013 contracts to 22,541.

Discuss gold and oil trading with other traders in the DailyFX Forum

Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

European Equities Falter as Recovery Optimism Wanes

Europe Session Key Developments

•    German Price Index Declines, EZ CPI Holds Steady Despite Low Rates
•    Euro area Trade Balance Decreases on Exports
•    Poor Earnings Data Drag Financials

European stock markets declined for the first weekly decline in over a month as a poor U.S. consumer sentiment report, coupled with worse-than-expected revenue data from JPMorgan drove markets negative on Friday. As JPMorgan, the United States first bank to report fourth quarter earnings, announced that it increased its credit-loss provisions, investors hesitated on the notion of a full recovery of the Financial sector, driving down banking institutions across Western Europe. All eighteen national benchmarks in Western Europe declined, except in Iceland, while the DAX dropped by nearly 2.0 percent. As trepidation builds regarding a full-fledged recovery just yet, market sentiment is expected to move on more earnings and a slew of important economic releases early in the week.

FTSE 100                      5455.37                   -42.83               -0.78%
Following a poor start to earnings season, the British market ended the week negative for the first time in the past four, finishing Friday at 5455.37. Eight of ten sectors dropped on the day, with Basic Materials, Telecommunications, Financials, and Healthcare all losing more than one percent each. Man Group, Britain’s largest publicly traded hedge fund, plummeted 6.9 percent after data showed a larger-than-expected drop in assets. Later in the session, news from the United States showed that JPMorgan, the second largest American bank, reported less-than-expected revenue, dragging Financial sectors across Europe down. Other losers on the day include QinetiQ Group, falling 12 percent, a record drop for the company. Overall, the index posted a 1.4 percent drop on the week, though the FTSE remains up 0.78 percent in 2010.

CAC 40                     3954.38                   -61.39                 -1.53%
Following its British counter-part, the French index sank today following dismal outlook from the Financials sector, which dropped over two and one-half percent on Friday. Overall, the CAC tumbled 1.53 percent, with nine of ten sectors appearing in the red on the day. Societe Generale, France’s second-largest bank, and Dexia, the largest lender to local governments in Belgium and France, each dropped 2.7 percent following the JPMorgan data. Amid the sell-off, notable gainers during the session were Carrefour, Cap Gemini, and Atos Origin, adding 3.6 percent, 3.6 percent, and 2.0 percent, respectively.

DAX                         5875.97                    -112.91             -1.89%
The German index fell the most among the five major European equity markets on Friday, declining nearly 2.0 percent to 5875.97. Despite data early in the session that German inflation remains well-within the European Central Bank’s medium-term range even as the ECB holds the key interest rate at 1.00 percent, the DAX tumbled following poor data suggesting consumer spending remains depressed abroad. Nine of ten sectors fell on the day, with Technology dropping 3.44 percent, and Financials and Basic Materials each losing more than 2.0 percent. Deutsche Bank and Commerzbank fell 3.7 percent and 2.5 percent, respectively, following Financials down across the globe. Other movers on the day included Drillisch, which added 2.3 percent, and HeidelbergCement, which fell 2.7 percent after its stock was downgraded to “hold” at ING Groep.

IBEX 35                     11845.00                   -154.80                 -1.29%
Spain’s IBEX index had its largest daily decline in nearly four weeks, dropping 1.3 percent for the day overall. The index is now down 0.80 percent in the new year following its biggest weekly decline in five weeks. Nine of ten sectors dropped on Friday, with five sectors dropping one percent or more, and Health Care posting the only gain on the day. Banco Popular Espanol slid 1.5 percent, while Banco de Sabadell fell 2.2 percent, its biggest decline in a month. Iberia Lineas Aereas de Espana added 1.5 percent, its largest gain since December 7, as crude declined during trading hours.

S&P/MIB                        23472.11                     -333.88                 -1.40%

Notable Europe Event Risk / Economic Releases

Written by Christopher Vecchio, CFDTrading Research
Please send any comments about this report to Cvecchio@fxcm.com

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