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Investors cautious ahead of ECB make or break announcement

15.05 AEST, Thursday 2 August 2012

Investors cautious ahead of ECB make or break announcement

By Ben Taylor (Sales Trader, CMC Markets)

Australia’s better than expected Retail Sales and Trade Balance figures have helped to keep our market mildly positive this afternoon. Investors however remain cautious ahead of tonight’s “make or break” ECB policy announcement.

The market is clearly hoping that Draghi’s “whatever it takes” comments mean a new round of struggling Euro nation bond buying. Speculation is mounting that we may also see a mix of fiscal and monetary policies to combat the situation. Capping troubled nation bond rates is another idea currently floating around the market.

With expectations running high any failings will be met with decisive selling. The markets have experienced a decent rally over the last week, which means we may have set ourselves up for disappointment if the ECB falls short of the markets high expectations.

If Draghi’s "high stakes" stance pulls-off we could be in for a quick snap higher as shorts are covered and we test the higher resistance levels around 4400.

Today’s positive retails sales numbers largely reflect the government's compensation payments, the quick 75bp fall in interest rates and a lower petrol price. The short term lift in consumer spending is however expected to be offset when the increased costs of household utility bills start to weave their way through the economy. This expectation for a slowing of consumer spending is the reason for the retail and consumer stable weakness through the day.

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