24option Market Review November 14, 2012

Global Market Commentary

Wall Street ended the day lower as worries about Greece’s debt crisis and the US fiscal cliff took the shine off strong quarterly results from home-improvement giant Home Depot. The Dow Jones Industrial Average dropped 58.90 points  to 12,756.18. The S&P 500 shed 5.50 at 1,374.53, while the tech-rich Nasdaq Composite fell 20.37  to 2,883.89.

In Europe traders were in risk aversion mode after EU finance ministers did not come to a conclusion over the conditions for the release of bail-out funds to Greece at a meeting in Brussels. While the DAX and FTSE were both off by close to 1% in early trading in Europe while the euro was sold, both equities and the currency rallied following reports in the German press that German policy might shift towards a more liberal aid disbursement schedule. Crude rallied on the news as well, causing CAD to appreciate against the USD and moving it to trade at parity as we went to press. European finance ministers assembled yesterday along with IMF Managing Director Christine Lagarde to discuss the terms and conditions for the disbursement of the next tranche of aid to Greece. The main market focus has shift once again from eco data and to news while traders follow the two themes, US fiscal cliff and Greece. Spain has been forgotten for the moment, giving Rajoy a time to relax a bit, but will return to the headlines shortly. The Bank of Ireland, after its bailout by the EU, is once again re-entering the bond markets, which shows that it is possible to recover.

Currency Market Commentary

EUR/USD

The euro could fall further in the short term currently trading at 127.25 this morning, given the differences of opinion among policymakers on the best way to deal with Greece.   Traders will not be blind to the fault lines both between the International Monetary Fund and euro zone policymakers and within the currency bloc itself.  The big clash is over how much time Athens should be given to get its debt down to sustainable levels.   “In our view the appropriate timetable is 120 percent by 2020,” said IMF head Christine Lagarde.  

GBP/USD

The GBP is trading higher up from a two-month low against the dollar on Tuesday and held steady before UK inflation data which would provide clues on whether more monetary easing is on the cards.   It was trading at $1.5862 and having broken through the 100-day moving average, the next support for sterling was cited at $1.5850, its 200-day moving average and a level not seen since late August.

USD/JPY

Shoppers are closing their wallets as the economy’s outlook darkens, making it harder for Prime Minister Yoshihiko Noda to stave off the nation’s third recession in four years. Households are holding the most cash since 2005, shunning risk as they grow gloomier, Bank of Japan data indicate. Sliding private consumption contributed to an annualized 3.5 percent decline in gross domestic product in the past quarter. Due to risk aversion as Greece and the US fiscal cliff weigh on the markets, the JPY remains strong, trading at 79.50.

Commodities Market Commentary

Metals

Gold prices slipped in thin trade on Tuesday as the euro stayed near a two-month low as uncertainty about another tranche of financial aid for Greece to help pay off its debt kept investors cautious, but steadier share prices could limit the decline. Gold is trading on the positive side this morning at 1727.95 remaining fixed to the 1725 level.

Energy

WTI crude oil fell for a second session on Tuesday but remained above $85 a barrel, pressured by worries about the U.S. recovery being thrown into disarray by the threat of looming U.S. tax increases and spending cuts – the so-called fiscal cliff. OPEC production levels remain near record highs, while consumption and demand forecasts continue to decline.