IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

FTSE 6292 +8

DAX 7883 +25

CAC 3788 +10

IBEX 8733 +8

DOW 13891 -5

NAS 2737 0

S&P 1502 -1

Oil 95.95

Gold 1660

Asian markets are mostly firmer after picking up some positive leads from Friday’s US and European trade. Earnings in the US continued to impress while a larger-than-expected LTRO repayment set the tone for the Eurozone. Out of the US companies that have reported so far, 75% have beat estimates on the EPS front. Many analysts were sceptical heading into this earnings season which had resulted in subdued trading leading up to it. However, such statistics have helped soothe investor concerns and as a result, US markets have had a positive run. The S&P has enjoyed an eight-day rally, its longest positive streak since 2004. Looking at the equities in the region, the Nikkei is lagging with a 0.4% drop despite the yen remaining under pressure. The Hang Seng (+0.5%) and Shanghai Composite (+1.5%) are both higher led by the financials and industrials. A rise in Chinese industrial companies profits for a fourth consecutive month has really given equities a kicker. The ASX 200 is closed for the Australia Day holiday. Apart from equities, the euro and yen remain the main point of focus after the recent moves we’ve seen. USD/JPY is quietly establishing itself above 91 now after having printed a high of 91.20. However, the Nikkei is looking a bit shy as it approaches the 11,000 level. Japanese officials have been on the wires again today but they haven’t done enough to drive further yen weakness. EUR/USD charged through previous resistance of 1.34 on Friday and went on to print a high of 1.348. Although the pair has been relatively sidelined in Asia, we wouldn’t be surprised to see it gravitate towards 1.35 as European markets kick off the week. EUR/USD is now testing highs from February last year, a break of which could see it head towards 1.4. Buying dips into the 1.34 region is likely to be the preferred strategy by traders as opposed to chasing it higher from here. However, you can never rule out momentum plays on a break of recent highs. With the euro looking increasingly bullish and the yen increasingly bearish, EUR/JPY certainly seems like the way to go at the moment. Its break above 120 could be a good indication that the pair is ready for the next leg higher. Ahead of the European open, we are calling the major bourses modestly firmer. However, US markets are facing a relatively flat open with no fresh leads to work on as yet. Focus will remain on earnings with Caterpillar set to report fourth quarter earnings. 109 firms which make up 24% of the S&P 500 report this week. Later today we have US core durable goods orders and pending home sales data to look out for. It will be a big week for the USD with the FOMC set to meet for the first time this year on Wednesday (Thursday morning AEDT). This could cause significant volatility in the fx space as we head to the end of the week.

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