fundamental analysis

European Equities Surge Back to 15-Month High

Europe Session Key Developments

•    British Inflation Surges as Interest Rates Remain Low
•    European Economic Sentiment Deteriorating amid Greece Debt Situation
•    Commodities Rebound as Dollar and Pound Advance against Euro

European markets gained for the second time this week despite declining sentiment of a full-recovery spreading throughout Europe. The German ZEW Survey of Economic Sentiment showed a decrease in January, dropping to 47.2 from 50.0, while the Euro-zone ZEW Survey for the Current Situation in January dropped to -56.6. The biggest news on the day, however, was the release of the Consumer Price Index, which showed that prices rose 2.9 percent in December. As the Bank of England winds down its Asset Purchase Programme next month, investors are beginning to worry whether or not the economy can afford higher interest rates to fight inflation just yet as the economy remains weak and unemployment continues to rise.

Looking ahead to tomorrow, a slew of economic data released midway through Wednesday’s session should help boost trading volume and swing sentiment among investors. German Producer Prices from December are expected to show weak inflationary pressures (0.2 percent expected), while data relative to the year previous is likely to show considerable deflation (-5.1 percent expected). The two most important releases of the session will come from Great Britain, as Jobless Claims Change data from December (-4.6K expected) and Bank of England Policy Meeting Minutes from the January 7 meeting.

FTSE 100                      5513.14                   +18.75               +0.34%
Trading in London resulted in the second consecutive day of gains for the British Index, up 0.34 percent to 5513.14. Gains were led by the Health Care and Utilities sectors, up 1.70 percent and 1.27 percent, respectively. Overall, nine of ten sectors gained, with Financials posting the only contraction following Citigroup earnings in the middle of the trading session. Barclays, Britain’s second biggest bank, fell 1.8 percent after Credit Suisse Group speculated that it would need to raises over 17 billion Pounds in order to meet new capital requirements. Burberry surged to its highest level in more than two years after gaining 8.3 percent following reported sales. Chocolate company Cadbury added 3.6 percent after it agreed to a revised $19.7 billion offer from American company Kraft.

CAC 40                     4009.67                   +32.21                 +0.81%
French stocks continued their rebound after a poor second week in the new year, jumping 32 points on Tuesday, the second consecutive day of gains for the index. All French sectors pushed higher, collectively gaining 0.81 percent. Basic Materials, Health Care, Telecommunications, and Oil & Gas all gained more than one percent, while Financials lagged behind, only gaining 0.27 percent. Alstom, the world’s second-largest train maker dropped 2.5 percent after it announced that its third-quarter sales fell short of analyst’s expectations. Other losers on the day included Renault, which fell 2.2 percent after its recommendation was cut to “neutral” at Nomura.

DAX                         5976.48                    +57.93             +0.98%
Despite German investor confidence falling for the fourth consecutive month in January, trading on the German index resulted in the second consecutive day of gains, adding just under one percent to 5976.48. The German ZEW Survey, a measure of Economic Sentiment, dropped to 47.2 in January as worries begin to spread about Euro strength and the sustainability of the recent surge in asset prices. Eight of nine sectors gained on Tuesday, with Consumer Goods posting a one-half of one percent loss. Telecommuncations, Health Care, Utilities, Basic Materials, Financials, and Technology all posted gains greater than one percent. Dialog Semiconductor, a semiconductor maker, advanced 2.7 percent after it showed a 60 percent increase in its cash balance at year end from the year previous.

IBEX 35                     12022.60                   +151.90                 +1.28%
Spanish equity securities rose for the second straight day on Tuesday, posting the biggest gain among the five major European equity markets, up 1.28 percent. Nine of ten sectors posted gains on the day, with Technology leading the surge, up 2.33 percent. Overall, six sectors gained more than one percent. The Health Care sector posted the only loss, down 0.41 percent on Tuesday. Banco Santander added 1.9 percent after it announced plans to sell 1 billion Euros of covered bonds. Enagas jumped just under one percent after it was rated “overweight” at HSBC Holdings. Other movers on the day included Abengoa, which gained 2.4 percent, and Iberia Lineas Aereas de Espana, which gained for a fifth consecutive day to its highest price since December 4.

S&P/MIB                        23705.67                     +195.91                 +0.83%

Notable Europe Event Risk / Economic Releases

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

fundamental analysis

Oil Stalls at $82, Metals Push Higher Ahead of Fed Minutes

Commodities – Energy

Crude Looks to Fed Minutes as Catalyst Ahead of Critical $82 Level

Crude Oil (WTI)        $81.82       +$0.50       +0.06%
Oil prices have paused ahead of major resistance below the $82 level, hinting that a double top may be in the works. Minutes from the last meeting of the US Federal Reserve headline the economic calendar, with traders looking for validation of the recent upgrade to the priced –in US yield outlook after December’s economic data took a decisive turn for the better. This stands to boost prices amid hopes of a speedier recovery for the world’s largest crude consumer, but a downward correction in the near-term may still be possible if traders perceive that their view of the US central bank’s time-table for raising rates has become rosier than is reasonable over recent weeks, with a downswing seeing initial support at $81.06.

Commodities – Metals

Gold Takes Out Key Resistance, Silver Tests Above $18

Gold       $1129.58       +$11.58       +1.04%
Gold prices looks to have taken out resistance at the top of a rising channel set from the lows in late December, with prices now aiming to challenge $1141.88. The metal retains a significant inverse correlation with the outlook for US monetary policy for the coming year (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures), so the release of the minutes from the last Federal Reserve meeting may prove to set off significant volatility.

Silver        $17.99       +$0.20       +1.12%
Silver prices have continued to soar, taking out support-turned-resistance at $17.79 and now targeting the $18.35 level. As with gold, a significant inverse correlation with the 2010 fed funds futures spread will mean that today’s Fed minutes release will be very closely watched.

fundamental analysis

Oil May Retreat as Metals Extend Gains on Softer US Data

Commodities – Energy

Oil May Retrace Lower from Resistance at $82 on Home Sales Data

Crude Oil (WTI)       $81.43       -$0.08       -0.10%
Oil prices are testing major resistance at a potential double top ahead of the $82 level. The US economic docket offers mixed bag of catalysts. November’s Factory Orders are expected to have gained 0.5%, marking the third consecutive monthly increase (albeit the smallest one over the same period). Meanwhile, Pending Home Sales are set to drop -2.0%, the first decline since January 2009. On balance, this seems to be the more significant catalyst considering the US construction sector is the world’s single largest crude consumer, with lackluster sales hinting at slower building and pointing to a softer demand outlook. This may engineer a downward correction in the near-term, with initial support seen at $81.06.

Commodities – Metals

Gold, Silver May Extend Rebound on Softer US Data

Gold       $1121.40       +$0.20       +0.02%
Gold prices have pushed above falling trend line resistance set from early December. The way higher has been guided by a rising channel, with prices now squarely at resistance market by the formation’s upper boundary. The metal retains a significant inverse correlation with the outlook for US monetary policy for the coming year (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures), which means that a bullish breakout may be ahead as US Pending Home Sales decline. Such an outcome will see the next layer of resistance at $1141.88.

Silver       $17.58       +$0.01       +0.04%
Prices have broken above resistance at the upper boundary of a falling channel established from early December, exposing support-turned-resistance at $17.79. As with gold, a significant inverse correlation with the 2010 fed funds futures spread will mean that US Pending Home Sales figures offer the bulls the steam they need to push ahead in the near-term.

fundamental analysis

Oil Poised to Advance, Metals Threatened on US ISM Data

Commodities – Energy

Oil to Extend Gains on US ISM, Cold Weather, Belarus Disruption

Crude Oil (WTI)       $80.62       +$1.26       +1.59%
Oil prices have continued to edge higher, tightly hugging the upper boundary of a broken rising channel set from December’s swing low below the $70 level. From here, the bulls look poised to test resistance in the $80.33 – $81.06 congestion region. Fundamental catalysts for further gains are plentiful. The Financial Times has reported that a spat between Russia and Belarus over oil prices has seen the former country stop crude shipments to its smaller neighbor. The FT has said that flows to Europe have been unaffected for now, but the total implications from the disruption remain unclear. Forecasts calling for below-average temperatures in the US are also supportive, boosting heating fuel demand in the world’s largest oil-consuming market. Finally, the outlook for US economic recovery looks to be firming as a Credit Suisse gauge tracking the market’s priced-in interest rate expectations rose to the highest since October to show traders now expect the US Federal Reserve to add 108 basis points to borrowing costs over the next 12 months. Offering further help in this regard, the US ISM Manufacturing PMI figure is set to rise to 54.1 in December, showing the industrial sector expanded at the fastest pace since April 2006.

Commodities – Metals

Gold, Silver Advance But US ISM Data May Stall Rebound

Gold       $1110.75       +$13.43       +1.22%
Gold have broken above the upper boundary of a falling channel that had guided prices lower for much of December. Near-term resistance lines up at $1114.45 from here. The metal retains a strong inverse correlation with the outlook for US monetary policy (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures), which hints that tomorrow’s release of December’s ISM figure may prove to be a hurdle for continued bullish momentum.

Silver       $17.14       +$0.25       +1.45%
Prices have extended a rebound from support at the bottom of a falling channel established earlier this month, moving back above the $17.00 handle. As with gold, a significant inverse correlation with the 2010 fed funds futures spread will mean that US ISM figures may check the bulls in the near-term.

fundamental analysis

Oil Advancing Toward $80, Gold and Silver Find Support

Commodities – Energy

Oil Continues to Grind Higher, $80 Close Ahead

Crude Oil (WTI)       $79.58       +$0.30       +0.38%
Oil prices continued higher after taking out resistance at $79.04 and are now on pace to move in for a test of the psychologically significant barrier at the $80 level. Weekly US jobless claims figures top the economic calendar, with an expected increase this time around offering the possibility of a corrective pullback ahead of the New Year holiday.

Commodities – Metals

Gold, Silver May Extend Rebound on US Jobless Claims Data

Gold       $1098.03       +$5.13       +0.47%
Gold prices are little changed heading into the final day of trade of trade before the New Year holiday, with prices recovering a bit to position for a re-test of the psychologically significant $1100 handle. The metal retains a strong inverse correlation with the outlook for US monetary policy (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures), which has recently forced losses on steadily improving US data. This relationship may start to offer prices a bit of support as weekly US jobless claims data shows a narrow increase.

Silver       $16.93       +$0.12       +0.71%
Prices found a bit of support at the bottom of a falling channel established earlier this month and have moved up towards a re-rest of the $17.00 handle on the upside. As with gold, a significant inverse correlation with the 2010 fed funds futures spread will mean that US jobless claims figures are the top fundamental catalyst to watch into the week-end.

fundamental analysis

Oil May Stumble as Gold Finds Support on US PMI Data

Commodities – Energy

Oil Prices May Stumble on Chicago PMI, Inventory Data

Crude Oil (WTI)       $78.96       +$0.09       +0.11%
Oil prices look to have taken out resistance at $79.04, though the break is rather shallow and the grind higher to test the psychologically significant barrier at $80 may be a slow one. Expectations of a decline in December’s Chicago PMI may also complicate the push higher, forcing a pullback (albeit a shallow one) in the recent surge of upbeat sentiment about the US economic recovery. A relatively small decline in the Department of Energy’s weekly crude inventory gauge may also prove to be a hurdle.

Commodities – Metals

Gold, Silver May Find Support in Disappointing US Data

Gold       $1092.25       -$4.59       -0.42%
Gold has continued to inch lower after testing resistance at the top of a falling channel that has guided spot rates lower for most of the current month. Continued bearish momentum targets support at $1082.48. The metal retains a strong inverse correlation with the outlook for US monetary policy (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures), forcing losses on steadily improving US data. This relationship may start to offer prices a bit of support with Chicago PMI set to decline for the first in three months in December.

Silver       $17.00       -$0.09        -0.56%
Prices have moved aggressively lower and are set to test the bottom of a falling channel established earlier this month (now at $16.85). As with gold, a significant inverse correlation with the 2010 fed funds futures spread hints that a bit of support may be seen at this juncture in the near term as Chicago PMI figures cross the wires.

fundamental analysis

Oil, Metals to Continue to Diverge on US Economic Data

Commodities – Energy

Oil May Push to $80 as US Economic Data Continues to Improve

Crude Oil (WTI)       $78.96       +$0.19       +0.24%
Oil is testing the $79 level after breaking out of a rising channel that had guided prices higher from the swing bottom below $70 set earlier this month. Continued bullish momentum will target the psychologically significant $80 level. The bulls may once again find their catalysts in improving US economic data, with tomorrow’s calendar set to bring the sixth consecutive monthly increase in the S&P/Case-Shiller Home Price Index as well as a three-month high in Consumer Confidence. Both releases stand to support continued gains, boosting the outlook for economic recovery of the world’s largest crude consumer.

Commodities – Metals

Gold, Silver May Extend Losses on US Rates Outlook

Gold       $1104.38       -$2.93       -0.26%
Gold has drifted lower after testing resistance at the top of a falling channel that has guided spot rates lower for most of the current month as US data has boosted Fed rate hike expectations. Indeed, the metal retains a strong inverse correlation with the outlook for US monetary policy (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures), with that link now at a formidable 93%. This threatens further weakness as data showing improvements in house prices and consumer confidence prepares to cross the wires in US trading hours.

Silver       $17.45       -$0.07       -0.40%
Positioning is strikingly similar to gold, with prices bouncing lower from resistance at the top of a falling channel established from early December. Also in line with its more expensive counterpart, a significant inverse correlation with the 2010 fed funds futures spread hints that further weakness is ahead if US data retains an upbeat tone as expected.

fundamental analysis

Oil May Trade Above $79, Metals Fail at Resistance on US Data

Commodities – Energy

Oil Prices May Test Above $79 as US Data Boosts Demand Outlook

Crude Oil (WTI)       $78.28       +$0.23       +0.29%
Prices broke out of a rising channel that had guided prices higher from the swing bottom below $70 set earlier this month and the path looks clear for a rise to test above $79 at this point. The nudge toward resistance may come if the Dallas Federal Reserve’s manufacturing activity gauge adds 2% as expected in December, yielding the largest increase in two and a half years boosting recovery prospects for the world’s largest crude consumer.

Commodities – Metals

Gold, Silver May Fail at Resistance on US Manufacturing Data

Gold       $1110.53       +$5.08       +0.46%
Gold prices look to be testing resistance at the top of a falling channel that has guided spot rates lower for most of the current month, with a break higher exposing horizontal support-turned-resistance at $1141.78. Fundamentally, the metal retains a strong inverse correlation with the outlook Federal Reserve monetary policy (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures). This means that an uptick in December’s edition of the Dallas Fed’s manufacturing activity gauge (set to rise 2%, the most since June 2007) may prove to weigh on prices.

Silver       $17.55       +$0.54       +0.31%
Positioning is strikingly similar to gold, with prices testing resistance at the top of a falling channel established from early December. Also in line with its more expensive counterpart, a significant inverse correlation with the 2010 fed funds futures spread hints that resistance may hold as the Dallas Fed’s manufacturing activity metric crosses the wires.

fundamental analysis

Oil and Gold Break Out Higher, Durable Goods in Focus

Commodities – Energy

Oil Prices Break Higher Eyeing $79 Ahead of Durable Goods Data

Crude Oil (WTI)      $77.04       +$0.37       +0.48%
Prices broke out of a rising channel that had guided prices higher from the swing bottom below $70 set earlier this month after DOE inventory fell more than expected. The path looks clear for a rise to test near $79. Thin liquidity conditions may prove to amplify volatility to produce significant momentum as November’s US Durable Goods Orders figures cross the wires. Forecasts call for an increase of 0.5% versus a -0.6% decline in the previous month, boosting expectations of future crude demand and offering a catalyst to validate the technical landscape.

Commodities – Metals

Gold, Silver Break Higher but Durable Goods Release Threatens Bulls

Gold       $1104.00       +$16.45       +1.51%
Gold has broken higher out of a Falling Wedge formation, with prices now seeing resistance at $1117.68 and $1141.78. However, the metal retains a strong inverse correlation with the outlook Federal Reserve monetary policy (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures), so the expected improvement in Durable Goods orders may work against bullish momentum by boosting US economic recovery and, by extension, rate hike expectations.

Silver       $17.33       +$0.22       +1.26%
Silver prices broke out a falling channel, with resistance now lining up at $17.53 and $17.80. As with gold, however, a significant inverse correlation with the 2010 fed funds futures spread hints that higher readings on tomorrow’s US Durable goods report may undermine a bullish outcome.

fundamental analysis

Oil and Metals Set to Diverge on US Data, Technical Positioning

Commodities – Energy

Oil Positioning Hints Losses But US Data May Offer Support

Crude Oil (WTI)       $73.34       -$0.06       -0.08%
A possible double top may be forming below $74.69 as negative RSI divergence hints at a forthcoming downswing. Initial support lines up at the bottom of a rising channel that has guided prices higher since the swing bottom below $70 put in earlier this month, now at $72.92. November’s US Personal Income and New Home Sales figures will be of interest late into the session; preliminary forecasts call for improvements on both metrics, which may prove supportive as markets become increasingly confident in the recovery taking shape in the world’s largest crude consumer. An upward revision to December’s Univ. of Michigan Confidence indicator offers similar potential.

Commodities – Metals

Metals Position to Correct Higher But US Data May Thwart Bulls

Gold       $1085.06       +$1.06       +0.10%
Gold prices are showing a Falling Wedge bullish reversal chart formation, with positive divergence on the RSI oscillator bolstering the case for an upswing. However, the metal retains a strong inverse correlation with the outlook Federal Reserve monetary policy (as expressed by the spread between Dec’2010 and Mar’2010 fed funds futures), which may thwart bullish momentum if the upcoming set of US economic data helps to underpin the upward correction in US interest rate expectations over recent weeks. Indeed, as mentioned above, economists are calling for improvements in November’s US Personal Income and New Home Sales figures as well as an upward revision to December’s Univ. of Michigan confidence reading.

Silver       $16.97       -$0.03       -0.15%
Near-term silver positioning is strikingly similar to that of its more expensive counterpart, with prices showing a bullish Falling Wedge with positive RSI divergence. A break beyond the wedge top (now at $17.21) exposes horizontal resistance at $17.65. Also in line with gold, however, a significant inverse correlation with the 2010 fed funds futures spread hints that higher readings on tomorrow’s US economic data releases may undermine a bullish outcome.

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