Holiday Optimism
21-12-2011
A faint glimmer of holiday cheer seeped into the broad markets on Tuesday. The EUR, GBP, and AUD all gained against the USD. While all 3 major currencies remain near the weaker parts of their value against the Greenback, short term sentiment produced a rally. Wall Street turned in good results yesterday. A Spanish bond auction went well. The German Ifo Business Climate survey beat its estimate. And housing sector data from the U.S. also came in better than expected. But before parades are launched to celebrate a new era, traders should note that a one day turnaround does not exactly wash away problems which certainly still exist. Also it should be clear that the lower volumes in the broad markets make for less resistance.
The ECB will be initiating a new program that will allow cheap borrowing to European banks today that will not have to be paid back for 3 years. This is an effort to help banking liquidity. The program will help banks in the short term and create a stronger balance sheet for the banks, but it may not exactly fix long term ills, particularly if banks try to buy bonds with the new funds in order to solidify collateral. This because Sovereign Debt in Europe is certainly not out of the woods yet and the prospects for further downgrades from ratings agencies from the likes of the S&P still shadow the markets. While the EUR did rather well yesterday and showed an ability to gain after a solid week of rather mediocre showings, it must be said that short term results should not be used to forecast long term outlooks. The holiday season may provide traders with time to take advantage of confidence buildings measures from the E.U. and its government offices, but massive questions about what will take place after the New Year begins should not go unheard. The EUR may actually find the ability to continue its rally going into the Christmas weekend, meaning that the next few days could prove interesting with short term momentum trades with light volume commonplace.
The U.S. will release Existing Home Sales numbers today, and after yesterday’s slightly better than anticipated results from Building Permits and Housing Starts, some may believe Existing Home Sales can provide another dose of cheer. But it should be noted that the housing market in the States has been within the depths of a large depression and improvements are not exactly signs of a turnaround. Also looming today will be the results from Oracle which released corporate earnings and its outlook late last night. The revenues that Oracle is projecting are less than predictions and this may cause some head winds on Wall Street today. However with less volume among traders, it might turn out that investors push aside the Oracle figures and try to continue to spread their merriment. The USD although it lost ground yesterday still maintains a safe haven avenue. But traders should be on the lookout for some possible short term losses with the USD.
The JPY remained locked within a consolidated pace on Tuesday. Gold is trading around 1625.00 USD this morning, having gained yesterday via the push upwards by the EUR also. Physical commodities led by Crude Oil turned in gains. The broad markets are certainly entering a period of minimal volumes and traders who choose to participate must take into consideration the short term ability to create trends that do not exactly match the long term looking glass.
