The markets are finally succumbing to a meaningful pull back after the Dow Jones made six consecutive higher closes followed by yesterday’s indecision.

Now it gets interesting. Was the rally just a function of low summer liquidity, or was there real meat behind the move? A good test will be the severity of the selling today and especially tomorrow (Friday).

Today the Dow Jones is down 1%, with the FTSE finishing down 0.8%.

This morning started with bad economic data from China and has got worse as the day progresses. US PPI came in below estimates at -0.5%. The most worrying data point was the Empire State manufacturing index coming in at 5.1 vs the 18.3 expected. That’s the 2nd lowest level since July 2009.

There have also been some wobbles in the banking sector after JP Morgan Chase produced earnings that smashed estimates. However it didn’t take long for markets to spot that most of the upside came from a reduction in loan loss previsions. Either a sign that JP Morgan are taking on excessive risk or that credit conditions are improving.

Judging by the markets reaction, it seems to be the former.

On the bright side, US unemployment claims came in slightly lower than expected.

Forex Trading Moves

The soft US economic data and general return of the fear trade has put the Japanese yen in the driving seat. The USD/JPY is down 1.10%, approaching support at ¥87.00.

Forex markets are a little disjointed at the moment though, at least in comparison to the recent dominant trends and relationships.

For example, the yen is strong against the US dollar, and very strong against the Aussie dollar which is suffering because of weak Chinese data (AUD/JPY is down nearly 1.6%).

However, the yen is virtually unchanged against the euro, which is surging after new Eurozone entrant, Slovakia approved the European Financial Stability Facility.

The EUR/JPY is unchanged while the EUR/USD is up 1.10%. The closely linked Swiss Franc is also bidding higher, with the USD/CHF coming close to support around 1.0400.

The Financial Fixed Odds update by David Evans, Market Analyst, BetOnMarkets.

This website content does not constitute investment advice. No individual contributor, contributing company, BetOnMarkets nor Online-Spread-Betting.com accept any responsibility for any use that may be made of the content.

Summary of the key overnight headlines:

• Last night’s release of the minutes from the last FOMC meeting showed that the Fed was concerned with the way the US economy is going. The standout quote was “The economic outlook had softened somewhat and a number of members saw the risks to the outlook as having shifted to the downside”. The Fed also noted that they expected higher unemployment and slower growth for some time.
• Hardly grounds for the continuation of the rally! While US markets certainly gave up earlier gains they still managed to close slightly higher (the Dow Jones) or only slightly lower (the S+P 500 Spreads).
• It does make you wonder if there really is nothing fundamental about this rally.
• Overnight, Chinese GDP and inflation (CPI) both came in below estimates.
• This is bad news for the Australian and New Zealand dollar which are heavily dependent on China for exports. The AUD/JPY is down 0.8% and the NZD/USD is off by 0.44%.
• The Bank of Japan added to the kept rates on hold and predicted stagnant growth for 2011.
• The Yen is in command this morning as fear creeps through markets. The USD/JPY is down 0.38%.
• Still to come we have US PPI and unemployment claims at 13.30 GMT.

The Financial Fixed Odds update by David Evans, Market Analyst, BetOnMarkets.

This website content does not constitute investment advice. No individual contributor, contributing company, BetOnMarkets nor Online-Spread-Betting.com accept any responsibility for any use that may be made of the content.

Strong earnings out of the US continue to boost risk appetite, with Intel the latest company to drive the appetite for risk, after reporting one of its best quarters ever.

This has driven investors to shake off the shackles of caution, and push the US dollar to 2 month lows against a basket of currencies, which in turn has given the beleaguered single currency some welcome respite.

The euro has continued to find support, shrugging off Moody’s downgrade of Portugal by two notches, which didn’t really add anything that the market didn’t already know about the problems in southern Europe.

The only risk overhang would appear to be the forthcoming European bank stress tests as the single currency continues to make new highs after yesterday’s decision by China to buy €400m worth of Spanish 10 year bonds yesterday boosted sentiment, while Greece’s successful return to the bond markets also helped.

Sterling has also risen, after core inflation rose back up to 3.1% in June after dipping to 2.9% in May from 3.1% in April, despite credit ratings agency Standard and Poor’s casting doubt on the growth forecasts of the Office of Budget Responsibility.

The pound was also helped in the afternoon by monetary policy committee member Andrew Sentance reiterating the case for a gradual tightening of monetary policy.

The pound remains in the spotlight today with unemployment data for June expected to decline by 20k. This would be down from drops of 30.900 in May and 32,000 in April. The claimant count unemployment rate is anticipated to be stable at 4.6% in June, while the ILO unemployment rate for the 3 months to May looks set to remain unchanged at 7.9%.

In the US, June retail sales are expected to show another decline, of around -0.2% though not as steep as the May figures which declined 1.2%.

Euro/Dollar spreads – the single currency has again pushed higher as it looks to break above the key $1.2750 level. A successful breach would target the inverse head and shoulders price target objective around $1.3200.

A failure to overcome the $1.2750 resistance could well see the Euro fall back towards the support around $1.2550, a break of which would re-target last weeks lows around $1.2480. To continue the upward momentum of recent days these lower support levels need to hold to push above yesterday’s highs.

Pound/Dollar spreads – the S&P comments saw the pound dip below £1.5000 briefly, however the sticky inflation numbers along with the Sentance comments have pushed the pound back above £1.5080/90 towards the recent range highs around the £1.5230/50. As with earlier this week the £1.5080/90 level will continue to act as a form of pivotal support as well as resistance if the market breaks below it. A break of 1.5230/50 would then target 1.5310 trend line resistance from the 17th November highs at 1.6880.

Euro/Pound spreads – yesterdays UK inflation numbers saw a dip towards £0.8320 however with no follow through the euro has recovered back to the resistance around £0.8400. While the euro continues to hold below the old June 2009 lows around £0.8400, then the bearish scenario remains intact but only just for now. The euro should continue to find support around the £0.8320/30 area, a break of which would target £0.8250.

Dollar/Yen spreads – despite another attempt to get through the ¥88.00 support level yesterday the dollar turned tail and has headed back towards this weeks highs around ¥89.15/20. While above this support level and the recent political instability the odds favour limited downside. The risk remains for yen weakness and a re-test towards ¥89.20, a break of which would re-target the ¥90.00 area. A drop back below the ¥88.00 level would re-target the downside risk of a move back towards 8¥6.80.

Spread betting, FX and CFDs are leveraged products. They carry a high level of risk to your capital. It is possible to lose more than your initial investment. These products may not be suitable for all investors, therefore ensure you understand the risks involved. Seek independent advice if necessary. Note that CMC Markets provide an execution-only service. CMC Markets research and charting tools are indicative and provided for information purposes and must not be relied upon as investment advice.

Article by Michael Hewson, Analyst, CMC Markets.

The above content does not constitute investment advice. Neither CMC Markets nor Online-Spread-Betting.com accepts any responsibility for any use that may be made of the above.

CMC Markets is authorised and regulated in the UK by the Financial Services Authority, registration no. 173730.

• FTSE 100 makes it 6 winning days from six, closing up 2% yesterday on the back of positive BP news.
• US markets including the Dow Jones are also six from six as of last night’s close.
• After the closing bell, Intel’s latest earnings came in above estimates, pushing Nasdaq futures 1% higher. The rally may not be over yet.
• US dollar showing strength against the yen this morning with the EUR/USD and AUD/USD also down mildly.
• The pound is on the rise after yesterday’s inflation figures. The GBP/USD is up 0.25% while the GBP/JPY is 0.6% higher.
• Coming up today we have UK jobless claims at 09.30 and US retail sales at 13.30 as the day’s standout announcements.

The Financial Fixed Odds update by David Evans, Market Analyst, BetOnMarkets.

This website content does not constitute investment advice. No individual contributor, contributing company, BetOnMarkets nor Online-Spread-Betting.com accept any responsibility for any use that may be made of the content.

Last night the Dow Jones managed to close higher for 5th day in a row, the rally has legs it seems.

However there is still some way to go before we can safely say we’re out of the woods. The Dow Jones spreads recoveries have got shallower. The last rally lasted 200 points more before faltering.

Today presents a stern test for both the stock markets and currency markets with a big slug of heavy economic data due along with the start of earnings season.

We’ve already had UK RICS house price balance disappoint – it came in much lower than expected. More bad news for the faltering UK house price recovery. Next up is UK CPI & Core CPI due at 09.30, with both inflation measures expected to drop by 0.2% on last month’s numbers.

Also keep your eye out for any reaction to MPC member Sentance’s speech at 13.30 PM. Andrew Sentance is the lone voice urging rate hikes to stem UK inflation before it gets out of control. If the above Consumer Price Inflation numbers comes in significantly above estimates, his words could have even greater impact.

From Europe we have the hotly followed German ZEW economic sentiment at 10.00. The German economy has been recovering well so a strong number is hoped for.

Then at 13.30 we have US and Canadian Trade balance numbers. Can Canada trump the US again as it did with last week’s jobs numbers?

After the closing bell we have the latest earnings numbers from chip giant Intel.

Forex Trading

It’s pretty quiet out there so far this morning. The exception is the Aussie dollar which is selling off at reasonable pace against both the yen and the US dollar.

The Australian Dollar/Yen spread has been rangebound for the last few day with &yen78.00 acting as resistance. $0.8800 has been acting as resistance on the Australian Dollar/US Dollar spread.

The GBP/USD recently broken below its upwards trend channel after last week’s sting of disappointing economic data points.

The EUR/CHF has been rangebound for the last week or so after the Swiss Bank re-started its direction interventions in the market. The range can’t last forever though.

The Financial Fixed Odds update by David Evans, Market Analyst, BetOnMarkets.

This website content does not constitute investment advice. No individual contributor, contributing company, BetOnMarkets nor Online-Spread-Betting.com accept any responsibility for any use that may be made of the content.

The pound will be in the spotlight today and this week with a number of economic announcements starting with the release of the delayed UK final Q1 GDP data, and current account figures.

After Friday’s poor PPI and trade data any disappointment here could well heap further pressure on the pound and exacerbate the losses seen on Friday.

The final revision of GDP is expected to come in unchanged from the previous reading around 0.3% despite speculation about the reasons for the delay from June 29th, and possible problems with the quality of the data.

Political instability in Japan has hurt the yen over the weekend after weekend elections made it less likely that the new Prime Minister will be able to take steps to reduce the size of the Japanese public deficit, and also put his own position under some threat after his party lose their majority in the upper house.

In Europe the focus remains on the impending bank stress tests with all manner of speculation as to the size of “haircuts” that will be levied against various sovereign state assets.

Despite the recent recovery in the Euro concern remains about the viability of certain European countries to raise money independently in the bond markets after Greece scrapped a one year bill auction due to high borrowing costs, but intends to go ahead in an attempt to sell 6 month bills this week.

This rally in the euro is more a symptom of US dollar weakness than any change in perception about the single currencies fortunes, as concerns remain about the recovery in the US, after two weeks of economic data that have given rise to fears of an extended period of low rates in an attempt to stave off the risk of a double-dip recession.

EUR/USD – the single currency continues to find support and make new highs but has as yet been unable to break above the key down trend line from the $1.5142 highs in December, which now comes in at the $1.2720 level. A break of 1.2750 would target a move towards $1.3000. However with momentum starting to look a little stretched we could well see a move back towards support around 41.2550, a break of which would re-target last weeks lows around $1.2480.

GBP/USD – Friday’s poor PPI data has undermined the pound in the short term and the failure to break above resistance around the $1.5230/50 area, has seen the pound slip below its support at $1.5080. This area should now act as resistance in the short term.

This break has seen the pound head towards the next support around $1.4980, a break of which could target a test towards the 41.4850/80 area.

EUR/GBP – the single currency continues to grind relentlessly higher but has as yet failed to get above the old June 2009 lows around £0.8400. This was the long term support, the break of which targeted the move below £0.8170 last month and this level needs to hold to re-target the recent lows. A break and close above here could well target a sharp move higher towards £0.8460. The euro should find support around the £0.8320/30 area.

USD/JPY – twin lows around ¥87.00 have so far supported the dollar and the fact that it has managed to remain above ¥88.00 combined with some political instability won’t help the yens cause. The risk remains for yen weakness and a test towards ¥89.20, s break of which would re-target the ¥90.00 area. A drop back below the ¥88.00 level would re-target the downside risk of a move back towards ¥86.80.

Spread betting, FX and CFDs are leveraged products. They carry a high level of risk to your capital. It is possible to lose more than your initial investment. These products may not be suitable for all investors, therefore ensure you understand the risks involved. Seek independent advice if necessary. Note that CMC Markets provide an execution-only service. CMC Markets research and charting tools are indicative and provided for information purposes and must not be relied upon as investment advice.

Article by Michael Hewson, Analyst, CMC Markets.

The above content does not constitute investment advice. Neither CMC Markets nor Online-Spread-Betting.com accepts any responsibility for any use that may be made of the above.

CMC Markets is authorised and regulated in the UK by the Financial Services Authority, registration no. 173730.

Markets are quiet this morning after another good session for the bulls yesterday. The Dow Jones closed up over 1% and the forex market’s risk barometer, the Australian Dollar/Yen finished up 2%.

The ¥77.00 acted as good support on the hourly chart yesterday, so keep an eye out for that today.

So far this morning there no significant moves to speak of save for a slight bias towards strength in the US dollar.

Looking at the US stock markets, the benchmark S+P 500 has rallied over 4% in the last 2 days. However some commentators are pointedly sceptical due to the below-average volume accompanying the rally.

Is the low volume a bullish or bearish signal?

Going back to 1994, every time the S&P 500 has rallied 2 days in a row for a total gain of at least 3%, the average returns going forward are as follows:

• The next day: -0.15%
• Next 5 days: 0%
• The next 20 days: +1.10%

However, if the volume is below the 20 day average, the returns are as follows:

• The next day: -0.07%
• Next 5 days: -0.36%
• The next 20 days: +0.63%

It appears it is not a massively bullish signal in the short or medium term. However there have been less than 50 instances of this condition since 1994 so the conclusions are only tentative.

Still, it will be interesting to see if investors are willing to hold on to profits over the weekend or sell off in the last few hours before the weekend as they did last week.

Trading Today

We have ECB president Trichet speaking at 07.50, which could be interesting considering the IMF are now calling for Europe to inject more stimulus into the economy.

At 09.30 we have UK PPI input with a small gain of 0.1% expected. UK trade balance is also due at the same time with a slight improvement to -£7.1bn on the cards. After a week of disappointing UK data , will the pound be able to handle more bad news?

Then at midday we have a raft of Canadian economic data with Employment change, the unemployment rate and housing starts due.

The Financial Fixed Odds update by David Evans, Market Analyst, BetOnMarkets.

This website content does not constitute investment advice. No individual contributor, contributing company, BetOnMarkets nor Online-Spread-Betting.com accept any responsibility for any use that may be made of the content.

Yesterday we noted how the Nasdaq 100 had gone southwards for a record 11 days. This couldn’t last forever and a bounce of some sort was due eventually.

However the size of yesterday’s rally took many by surprise. The Benchmark S+P 500 Spreads rose by 3.13%. Surprisingly that’s only its third largest gain this year. There wasn’t really a single news item responsible for buying, it appears to have been primarily a relief rally setting in from deep over sold levels.

What Can We Expect Today?

Since 1994 there have been 72 days with a gain of more than 3% on the S+P 500 (Using the ETF SPY for data). The next day is positive 50% of the time, but the average gain is a paltry -0.16%. This isn’t to say that Stock Market Indices won’t rally again today, just that historically after big 3% days, the next day is unlikely to follow through with as much force.

Forex Trading

This morning the yen is on the back foot as the risk takers gain control. The USD/JPY is putting further distance from support at ¥87.00 and the GBP/JPY is heading towards the upper part of the range mentioned yesterday.

King of the hill today is the Aussie dollar, with the AUD/JPY climbing 1.6% and the AUD/USD up 1%. The AUD is rallying after Australian employment data came in much higher than expected. The unemployment rate was also slightly lower than expected.

Trading Today

We have a busy economic calendar today, with the main items being the UK House Price Index at 09.00 and UK manufacturing production at 09.30.

Then from midday we enter central bank prime time with rate decisions and statements due from the UK’s MPC and Europe’s ECB from midday.

We don’t expect anything actionable or market moving from these announcements, but in the context of the current excitable environment, you never know.

Following this we have US unemployment at 13.30.

The Financial Fixed Odds update by David Evans, Market Analyst, BetOnMarkets.

This website content does not constitute investment advice. No individual contributor, contributing company, BetOnMarkets nor Online-Spread-Betting.com accept any responsibility for any use that may be made of the content.

US stock markets broke their seven day losing streak last night with the Dow Jones closing up 0.6% on the day. Although this seems a positive move on the face of it, the strength of the bears in the US afternoon session is noteworthy.

The Dow Jones gave up 100 points into the close as buyers were unable to hang on to the early enthusiasm.

This is best seen on the Nasdaq 100, the bears still managed to push the market lower for a record 11th session in a row.

Markets are still jittery about the strength of the global recovery. Will the UK or US economy lurch back into recession? Or will we have the best case scenario of below trend growth?

There are concerns surrounding Europe still, particularly Spain and Greece. Germany appears to be struggling through, especially thanks to the weaker euro. However investors are still unnerved by the unknowns surrounding German and French banks (not to mention the Spanish regional banks).

As Der Speigel reports, the forthcoming European bank stress tests are aimed at reassuring markets, but this could have the opposite effect and torpedo confidence. Make the tests too easy and no-one will pay attention to the results, make them too realistic stringent and it could erode confidence in the recovery.

With so many unknowns still out there, it’s not surprising that the bears were able to take 100 points off the Dow’s gains yesterday. The big test will be whether markets can build on yesterday for the rest of the week.

Forex Markets

This morning we’re back to ‘risk off’ mode as the late US session negativity spills over into the morning session.

The main victims are the Aussie dollar and euro, though in neither case has the morning’s sell off come close to erasing yesterday’s gains.

Beware FTSE 100 Bounces

Including yesterday, in 2010 there have been 15 rallies of 1% or greater on the FTSE 100 spread. It’s worth noting though that the top five days have all come within the sell off since April. So a 1% day isn’t exactly a reliable indicator of markets turning around.

Since 1 April 2010, the FTSE has lost nearly 13%. However, over the same period, buying for one day, after a 1%-up-day, has produced a gain of 2.54%. The rallies have been short lived though and holding for two days or longer produces a loss.

The Financial Fixed Odds update by David Evans, Market Analyst, BetOnMarkets.

This website content does not constitute investment advice. No individual contributor, contributing company, BetOnMarkets nor Online-Spread-Betting.com accept any responsibility for any use that may be made of the content.

Yesterday’s US holiday gave the market the perfect excuse to do as little as possible as currencies traded in fairly tight ranges.

Concerns about global growth continue to weigh on markets over the last 24 hours after the slowing service data out of China last week, with UK Service sector PMI for June yesterday coming in slightly worse than expected at 54.4, against an expectation of 55.0, its slowest rate for 10 months. This weaker than expected data knocked the pound lower and has lowered expectations of any move higher, or indication of a move higher on interest rates in the near future.

The other noteworthy announcement on an otherwise quiet day was the addition of NIESR’s Martin Weale to the Monetary Policy Committee from the August meeting, though this was largely met with indifference by the market due to the fact that he sits broadly between the dove and hawk camps.

The single currency has also slipped back slightly after its recent gains after comments from European Central Bank President Trichet urging continued austerity measures amongst European governments to rein in their budget deficits.

As expected the Reserve Bank of Australia kept rates unchanged at 4.5% exercising caution and a pause over concern about the global growth outlook and this inaction has boosted risk appetite slightly in Asia, with the US dollar losing a little ground.

The only US data of any note today is ISM Non-manufacturing data for June which is expected to come in around 55, a slight decline on last months figure of 55.4.

EURUSD – the failure to get above the $1.2610 level on a daily close throws into doubt the ability of the single currency to follow through on its break higher last week. While the unexpected break up through $1.2400 has certainly delayed the anticipated move back to the June lows at $1.1880 it certainly hasn’t ruled it out. Dips so far have been confined to the $1.2480 level.

The 50 day moving average should act as an area of support around the $1.2450 level and this area needs to hold for further upside to be forthcoming.

The inverse head and shoulders pattern break we saw last week would ordinarily herald a strong move higher; however its break conflicts with a much longer term 5 year monthly break down which could cap the Euro around $1.2780. Next resistance remains around $1.2610, a break of which targets $1.2670.

GBPUSD – the drift back from Friday’s highs has seen the stretched momentum begin to subside as the pound has slipped back towards the interim support area around $1.5080 yesterday. A break below yesterday’s lows could well yield up a deeper test towards $1.4980.

The key resistance levels on the top side remain around the 50% retracement level of the $1.6460-$1.4230 down move at $1.5345, as well as trend line resistance from the November 2009 highs at $1.6880 which comes in around $1.5375/80.

EURGBP – the failure so far to break above £0.8300 keeps the focus on the downside despite the gains of the past few days.

The lower euro scenario continues to remain intact for now while the single currency is able to hold below resistance around the £0.8320/30 area. In the unlikely event of a move above this area the longer term resistance around 0.8400 should cap.

Longer term the objective remains for a test towards £0.8000 on the way to £0.7785 over the coming few month’s which is a 61.8% Fibonacci retracement of the 3 and half year up move from £0.6570 to £0.9805.

USDJPY – continues to look heavy on the back of declining US yields and diminished risk appetite. The US dollar looks to be set to head towards ¥84.80 by way of support around ¥86.80. A recovery back above ¥88.20/30 is needed to stabilise the dollar in the short term

Spread betting, FX and CFDs are leveraged products. They carry a high level of risk to your capital. It is possible to lose more than your initial investment. These products may not be suitable for all investors, therefore ensure you understand the risks involved. Seek independent advice if necessary. Note that CMC Markets provide an execution-only service. CMC Markets research and charting tools are indicative and provided for information purposes and must not be relied upon as investment advice.

Article by Michael Hewson, Analyst, CMC Markets.

The above content does not constitute investment advice. Neither CMC Markets nor Online-Spread-Betting.com accepts any responsibility for any use that may be made of the above.

CMC Markets is authorised and regulated in the UK by the Financial Services Authority, registration no. 173730.