Market Outlook for January 17, 2012 ~ eToro

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Recap of the Latest Global News

By Cory Vi & Andrew Su on Jan 17, 2012

After downgrading nine European nations including France on January 13, Standard and Poor's announced that it will also cut the rating of the European Financial Stability Facility from AAA to AA+. Yesterday, the news offset a relatively successful French bond auction which saw yields falls on one year notes fall from 0.454% at a January 9 auction to 0.406%. It appears that most investors had already priced in a cut in ratings for France and the reaction of investors in the first trading session after the release of the mass downgrades was rather muted. Germany is now the only eurozone nation with a stable AAA rating. After failing to move much higher from 18 month low, the EUR reacted positively to the Chinese GDP data which has seen it trade as high as 1.2776 in European trade.

Chinese gross domestic product in China rose by 8.9% in the fourth quarter compared to a year earlier. Although still a strong number, the number represented the slowest economic growth in more than two years. The number supports mounting speculation that China will soon act to ease monetary policy which has lead to a rise in riskier assets across the board. The Australian dollar has been the major beneficiary of the move with the currency moving strongly above 1.0430.

The focus this week for European leaders will be to address the mounting criticism of their handling of the debt crisis by delivering new fiscal rules and work out a solution for Greece as the rescue plan for that nation flounders. The discussions surrounding Greece and the reduction of the debt burden remain a strong focus and will be an important tests in the eyes of international investors.

With the Martin Luther King holiday yesterday in the United States, investors were focussed largely on Europe and it was somewhat of a surprise to see a very muted reaction to the S&P downgrade of a number of eurozone nations including France. Stocks across Asia rose strongly as the slowest economic growth in China is more than two years raised expectations of monetary easing in the world's second largest economy. Chinese stocks rose almost 5% while the Hang Seng gained 3.24% while the Nikkei rose 1.05%. European stocks are higher by about 1%.

Commodities News

Commodities futures were broadly higher in response to the Chinese GDP data. WTI crude rose 1.8% to above  01.50 as the war of words escalated over the Iranian situation. Precious metals are higher with gold gaining 1.8% to ,661 while silver is trading above $30.20 up 2.3%. Soft commodities were largely higher while copper gained strongly rising 2.85%.

FX News

EUR/USD

Slightly better-than-expected GDP data out of China triggered short covering for risk currencies today, which included the EUR/USD.  After finding support at 1.2647 in Asian morning trade the pair drifted quite orderly in one-way and that was upwards.  The real action began when China released its Real GDP Q4 and EUR/USD never saw the day's bottom again.  The data came out as 8.9% against forecast of 8.7% which spurred short-covering across the board including EUR/JPY.  Certainly stop losses were triggered and we hear there may be more above 1.2850.  Overall euro may head higher in the near term on the back of short covering and stop losses but the general trend seems to be intact and that is down!  For the NY trading session we expect range trading between 1.2720 - 1.2850.

 GBP/USD

In the UK, consumer prices rose an annual 4.2% compared with 4.8% in November which eased pressure on consumers amid concerns that the economy may already be back in recession.  GBP/USD rallied on the back of this positive sentiment but should be cap around 1.5420 for the rest of NY trading session today.  The main resistance level will be at 1.5588 (38.2% retracement from 1.6165 to 1.5230).  Overall the trend remains bearish unless 1.5700 is taken out. Support is quite solid at 1.5300.

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