Fundamentals:
European might have a hard time posting gains today after the S & P 500 could not manage to maintain itself above the highs from early November and if we don’t start to see more significant upside momentum, technical traders are going to start looking at it as a false break.
Today, traders will be watching Look German industrial orders as the most important data release, coming in at 11:00 GMT. Yesterday, we did see German Factory Orders coming in on the downside of market expectations and this could be an indication of what we will see today given the high level of correlation between these two releases.
Markets will be watching these numbers to get an understanding of Germany’s ability to fund loans for the PIIGS countries. A weaker Germany means a weaker Euro and lower regional equities.
In the U.S., President Obama orchestrated a tax deal with the republicans, which essentially amounts to $200 dollars worth of stimulus in the form of a one year decrease in payroll taxes. This is a positive for equities and carry trades in currencies. In equities, pro cyclical stocks (technology, industrials, and materials) could benefit especially as money is injected to stimulate the U.S. economy.
Technicals:
Commodities:
Gold saw a very clear false break yesterday, surely hurting a lot of breakout traders and running stops on line positions. This is a clear example of why we usually try to be contrarian players and not chase elevated prices. Prices reach as high as 1430 (a new all time high) before dropping rapidly and finding support just above key levels at 1380. This level is historical support as well as the 62% Fib of the last rise. Prices should at least see a period of consolidation here but a break of 1380 will cause downside momentum to accelerate.
Currencies:
The 4H chart in the GBP/USD is still looking like we are on the verge of an upward reversal. We are long in this pair from 1.56 and we have raised our stop to lock in 45 points of profit. We are looking for a test of at least the downtrend line from 1.6290, which should come in around 1.5850. If prices fail there, we will close the position. Right now, resistance ahead is at 1.5820 and support is the 30 minute double bottom at 1.5660. A break there shifts the bias and targets 1.55. The hourly indicator is still moderately bullish from mid levels, so the next key level break will clarify the direction going forward.
Stocks:
The FTSE is continuing its steady climb above resistance with very little in the way of meaningful pullbacks. Steady climbs like this are generally more sustainable but there will inevitably be pullbacks somewhere along the way and we are viewing these as buying opportunities. After the break of Fib resistance at 6405, we are targeting a full retracement back to the daily double top at 8250. This, however, is obviously a long term bias that will take months to unfold so we are looking for shorter term pullbacks to start building positions. The next key resistance is at 7280. Support below comes in at 6380.