Market Outlook for January 19, 2012 ~ eToro

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Recap of the Latest Global News

By Cory Vi & Andrew Su on Jan 19, 2012

The markets remained positive despite the World Bank cutting its global growth forecast by the most in three years. It forecasted that global growth would slow to 2.5% in 2012, down from an estimate of 3.6% in June. The Bank said that the global slowdown would pose a serious threat to emerging economies such as India and Mexico. It predicted that the euro area may contract by as much as 0.3%. Germany has also cut its 2012 economic growth forecasts. However, the EUR continues to rise after the latest bond auctions where French yields dropped and Spain sold more bonds than targeted. The common currency surged above 1.2900.

Spain sold EUR 6.61 billion of 2016, 2019 and 2022 maturing bonds against a target of EUR 4.5 billion while France sold 2014 notes at a yield of 1.05% which was down from 1.58% in October. Speculation surrounding a relaxation of banking capital requirements in China has also boosted market sentiment. UK consumer confidence as recorded by the Nationwide Building Society fell to its second lowest level since the survey began in 2004 amid rising unemployment and the eurozone crisis. The GBP has underperformed against the EUR and is flat for the session at 1.5440.

Equity markets were buoyed by the IMF proposal to increase its lending capacity and continued strength in US economic indicators. Yesterday, confidence levels of US homebuilders rose to the highest levels more than 4 years in the month of January. Furthermore, reports that the Greek government would finalize an agreement with private creditors by the end of the week also supported markets. Asian stocks gained with the MSCI Asia Pacific rising more than 1% on continued speculation that China will relax credit restrictions. European bourses are surprisingly flat despite the surging EUR.

Commodities News

Commodity prices gained as market sentiment continues to improve. WTI crude is higher by almost 1% to $101.50 as issues surrounding Iran continue to support the price above $100.00. Precious metals gained with gold rising 0.3% to $1,667 while silver gained 0.64% to $30.74. Soft commodities were broadly higher with wheat recovery some of yesterday's losses while copper gained 1.5% to a 4 month high.

FX News

EUR/USD

EUR/USD steadied around 1.2848 on London open as the market awaits further news from Greece and its creditors while they continue their negotiation for the second day. Also on alert is the ECB's monthly report. When that was made public EURO rallied to 1.2909. The headline news was ECB sees 'tentative signs' of stabilization in the euro economies. Two other reasons for long Euro (or get out of shorts) were that IMF are said to be seeking $500B Resource Boost and fear of EUR/JPY intervention by BOJ. We expect EUR/USD to find resistance at 1.2935 with large stops above the level. On the downside we think immediate support may be around 1.2817 during NY session but first major support may be at 1.2780 (61.8% fib level). Again bearish channel is still in play but we are approaching the high end. Technically speaking and without considering fundamentals this bearish trend may be broken if we break above 1.2950. If that happens consider buy on break-out.

GBP/USD

With GBP/USD breaking resistance at 1.5414 we see this level as an immediate support level for today's trading range. On the top side it may cap at 1.5520-30 on a technical view. With no headline news to trade on today we expect the GBP/USD to range bound or take the lead from its euro neighbour. On the technical side, the trend is still bearish from the daily chart unless 1.5530 is taken out. Then look for first retracement (38.2%) at 1.5588.

USD/JPY

With a trading of 76.69 to 76.87 for the last 12 hours into the day and especially during Asian time, one would question how one can prosper from this currency pair? The answer may that you need to be patient. The FX Market is wary of Japanese officials' concern about the JPY's rapid strength and how it is not reflective of the country's economics but traders expect the chance of intervention would rise if USD/JPY revisits record low of 75.31 and or EUR/JPY falls to around 95.00. With that we think that for the rest of the day it may just trade between 76.50 to 77.11.

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