Market Outlook for February 8, 2012 ~ eToro

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By Cory Vi & Andrew Su on Feb 8, 2012

Markets rallied yesterday for no apparent reason other than that the Greek government's negotiations with the troika, made up of the European Commission, the European Central Bank and the International Monetary Fund, hadn't broken down irrevocably. Greek PM Papademos postponed a meeting with his coalition partners for the second consecutive day as terms for the second aid package remain unresolved. The expectation of the markets is that final terms are being completed for the EUR 130 billion rescue package today. The package has been under discussion since July and we are somewhat surprised at international investors' patience and optimism. It appears that statements from Sarkozy and Merkel that Greece will not be allowed to go bankrupt have done the trick for now and the EUR rallied to as high as 1.3289 today.

In news that seems to have been largely ignored by the markets, Fed Chairman Bernanke made comments that the US unemployment rate understates the weakness in the US labour market and that he was particular troubled by the very high levels of long term unemployment. The USD continues to weaken across the board with the commodity currencies such as the AUD and CAD making strong gains.

Yesterday, the Dow Jones rose to its highest levels since May 2008 on hopes that the situation in Greece will soon be resolved as a final draft of the conditions of the second bailout package is completed. Coca Cola shares rose 1% on better than expected earnings and 7 out of 10 groups in the S&P 500 rose. The S&P 500 closed 0.2% higher at 1,347. Asian share markets rose more than 1% while European bourses are higher by 0.5% in mid session.

Commodities News

Commodity prices managed to rise yesterday with the CRB index gaining 0.8 points to 315. WTI Crude recovered from earlier falls to gain strongly to $99.50 as the USD fell and crude inventories fell. Precious metals were underpinned by the falling Dollar as gold consolidated at $1,749 and silver rose 0.5% to $34.35. Soft commodities are broadly higher while copper has gained 0.7%.

FX News

EUR/USD

The euro seems to have a mind of its own today being the best performer out the risk currencies, reaching levels we haven't for 2 months. Perhaps statements from Sarkozy and Merkel that Greece will not be allowed to go bankrupt has helped boost confidence in the single currency and as Greece and the troika are putting the finishing touches on the terms required for a 130 billion-euro ($173 billion) bailout package. The market is looking at the 'outcome glass' as half-full. Technically if today's low of 1.3244 (38.2% fib level) holds and euro continues with the momentum, the 50% retracement is within reach at 1.3435. At this time it may be ripe to look for rallies to sell for the long term.

USD/JPY

USD/JPY continued its upward trend on the hourly chart hitting 100-day MA of 77.20 at the time of writing. Yen selling was spurred today on the back of current account data which saw Japan's current account surplus shrink 44% in 2011 from the previous year to 9.63 trillion yen ($125 billion), the lowest since 1996. If 76.85 level holds on the downside, the next resistance level should be 78.25. We think USD/JPY is a selling opportunity above 78.00.

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