Fundamentals:
Gains in the S&P 500 to end last week and the close to bailout negotiations between Ireland and the EU should be seen as a positive for the for the open in European equities today. We have a light data schedule to start the week so the story out of Ireland is likely to guide markets for the time being.
Ireland agreed to accept a bailout package of approximately 80-90 billion Euros, but many analysts have argued that this will not be enough to solve Ireland’s problems. That said, the story is still an improvement from the gridlock we were seeing previously, so risky assets, and the Euro in particular, should attract some buying activity.
On the US banking front, a study from Barclays theorizes that American banks will probably be forced to deal with Basel III regulations, as the 35 largest banks might need loans of 100-150 billion USD to meet requirements. Most of this stimulus will be needed by the six largest banks. At the moment, these loans are not absolutely necessary but this will change if we see more asset write-offs.
This issue has the potential to snowball and affect European banks as well and given that the vast majority of the banks in the EU failed the stress tests that were undertaken earlier this year, some bank failures in the region are clearly possible. Increases in global interest rates or further asset write-offs would cause this to happen more quickly.
The S&P 500 is now approaching the psychological 1200 level that has repelled prices recently and if the current momentum continues, the index could threaten its old highs from last month.
Technicals:
Commodities:
Gold is trying to reignite its long term rally after bouncing off is the triple bottom that has developed around the 1330 level. This area should be considered strong support at this stage and the short term bias will only turn downward if this level is broken. Hourly indicators are also bullish from mid levels. Resistance come in at the confluence of historical and Fib levels resting at 1363. A break there targets 1377.
Currencies:
The EUR/USD is still making gains after bouncing off of support at the 50% retracement of the move from 1.2650, at 1.3470. We have seen the 1.3775 resistance level break, which is significant on the hourlies but so far, the extension has been limited. If prices do not head north again soon, we will be forced to start looking at this as a false break. We have a small uptrend channel developing on the hourly charts, so on balance the bias is upward, but pay special attention to the possible false break.
Stocks:
The S & P 500 is managing to bounce off of the 23.6% Fib level just under 1180. From here, resistance comes in at 1205 and if that level breaks, markets will begin to focus on the old highs around 1225. Daily indicators are actually bullish at this point, from mid levels, so a test of the old highs is at least possible. That said, the drop last week was damaging to the longer term bias so it is unlikely that gains will continue for much longer. Major support comes in at 1170.