Daily FX & Market Commentary US contracts in the fourth quarter

Daily FX Commentary: (Morning Report)

EUR/USD 

The Euro eventually attacks strong 1.3500 barrier, after yesterday’s break and close above previous high at 1.3477. Positive sentiment that drives the pair is supported by positive technicals and strong bullish momentum for clear break above 1.3500, 50% retracement of 1.4938/1.2042 and weekly inverted H&S neckline that is seen as a trigger for extension of broader uptrend from July 2012 annual low at 1.2042. Immediate targets lie at 1.3547/67, 02 Dec / 18 Nov 2011 highs, ahead of psychological 1.3600 barrier. On the downside, previous peaks at 1.3477 offer initial support, while any stronger retracement is expected to hold above 1.3420/00, 28/29 Jan range floor / previous highs. 

Res: 1.3547, 1.3567, 1.3600, 1.3650 
Sup: 1.3495, 1.3477, 1.3460, 1.3420 

GBP/USD 

Near-term structure remains positive, as the pair recovers from the recent lows under 1.5700 handle, where temporary support was found. With over 61.8% of 1.5825/1.5673 being retraced so far, focus remains at 1.5800/20 breakpoint, reinforced by descending 55 day EMA, clearance of which is required to confirm near-term base and allow for stronger recovery. However, studies on 4h chart are still below their midlines and unless 1.5820 is cleared, risk of lower top and fresh weakness, as a part of larger downmove from 1.6380, still exists. 

Res: 1.57721.5784, 1.5800, 1.5823 
Sup: 1.5740, 1.5708, 1.5694, 1.5673 

USD/JPY 

The pair regains strength, as corrective easing from 91.24 peak was contained by 20 day EMA at 90.31, just above strong 90.23/00 support zone. With 91.00 handle being regained and hourly studies turning positive, attack at 91.24 and fresh extension towards 92.00, is seen as likely near-term scenario. Any retracement should not exceed 90.00, in order to keep immediate bulls intact. 

Res: 91.08, 91.24, 91.50, 92.00 
Sup: 90.83, 90.31, 90.23, 90.00 

USD/CHF 

Near-term bears remain in play, as the price consolidates above 0.9200 handle, following break below that spiked to 0.9191, Fib 138.2% extension of 0.9220/0.9291 upleg. With negative structure dominating on the lower timeframes studies, the downside remains favored, with sustained break below 0.9200, expected to open 0.9100/0.9080 base. The upside is seen protected at 0.9240/50 zone, Fib 50% / 61.8% of 0.9291/0.9191 / 55 day EMA, where rallies should be capped.


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Daily Market Commentary: (Evening Report)

London Market Report

Market Movers 

• techMARK 2,266.83 +0.30%
• FTSE 100 6,323.11 -0.25%
• FTSE 250 13,046.54 -0.47%

After a decent start, London's FTSE 100 index slipped into the red in the afternoon session, as disappointing gross domestic product (GDP) figures from the US dampened risk appetite.

Mining stocks bore the brunt of the selling today, pulling the resource-heavy Footsie down from the four-and-a-half-year high reached the day before.

US contracts in the fourth quarter

The world's largest economy saw GDP shrink 0.1% in the fourth quarter of 2012, surprising analysts who had expected 1.1% growth. This was a sharp contrast to the 3.1% expansion seen in the third quarter.

While the headline figure does not look good, analyst Peter Newland from Barclays Research gave reasons why it's "not all doom and gloom". He said that the downside surprise was mainly due to two components – inventory accumulation and government defence spending – so when excluding these, "the tone of the report was positive".

He said that the relative strength of consumption and business investment "suggests that household and corporate sector demand was resilient in the face of uncertainty over the outcome of the fiscal cliff and in a solid position heading into the new year."

That would probably suggest why the negative market reaction (on the FTSE 100 at least) to the report was only modest, especially when you consider the recent rally seen in stock markets worldwide since the start of the month.

All eyes now on the FOMC

The focus now turns to tonight's announcement (at 19:15) by the Federal Open Market Committee after its two-day meeting in Washington.

"There was some unrest at the last meeting according to the minutes that were released, with some members suggesting that the programme be wrapped up either in June or at the end of the year," said market analyst Craig Erlam from Alpari.

"That is unlikely to happen now, with unemployment remaining stubbornly high and growth far from the levels needed to bring it down," he said.

Europe Market Report 

Europe midday: Stocks edge lower

- Investors eye US monetary policy decision
- Italy's benchmark falls on confidence index
- Europe's economic confidence improves
- Spain reveals worse-than-expected contraction


FTSE-100: 0.03%
Dax-30: -0.13%
Cac-40: -0.12%
FTSE Mibtel 30: -2.04%
Ibex 35: -0.20%
Stoxx 600: -0.34%


European equities were trading lower at the midday mark Wednesday as investors awaited a monetary policy decision from the US.

The Federal Open Market Committee is due to reveal its plans at 19:15 after a two-day meeting in Washington. While the decision will be closely watched, analysts have labelled it as the most anticipated "non-event" of the week.

Meawhile, Italy's FSE MIB benchmark plunged as the Italian Statistics office ISTAT's business confidence index for the month of January fell to 88.2 (consensus: 89.5) after a reading of 88.9 in the previous month.

Elsewhere in the country a shock profit warning came from oil services firm Saipem. Shares were suspended as the Italian group forecast an 80% fall in earnings.

The announcement hit the oil services sector which was expected to grow 35.3% year-on-year in the coming quarter, according to Thomas Reuters data.

More promising news for the Eurozone came from data revealing a rise in economic confidence.

An index of executive and consumer sentiment climbed to 89.2 from a revised 87.8 in December, the European Commission in Brussels said Wednesday.

The results pointed to signs the 17-nation currency bloc may be emerging from a recession.

Spain reveals worse-than-expected contraction

Spain reported worse-than-expected contraction of its economy during the fourth quarter of 2012.

According to the preliminary data from the INE (government statistics office), Spain's economy fell 0.7% during the quarter, compared to the prior drop of 0.3%. Consensus had expected a contraction of 0.6%.

It comes as the Spanish government grapples with the implementation of austerity measures required as part of its Eurozone bailout.

In a separate report, the country's autonomous community Catalonia has asked for more bailout funds from the central government.

The Catalan regional government requested €9.1bn for 2013, compared with the €5.37bn it asked for last year.

Euro strengthens

The euro topped $1.35 for the first time since December 2011, while the Eurozone single currency reached its highest level since April 2010.

Brent crude features ascended 0.453 dollars to the 114.880 dollar mark on the ICE following a flat start.

US Market Report

US open: Equity investors keep the faith

US markets shook off a disappointing fourth quarter GDP figure to open just slightly down on Wednesday.

The Standard & Poor's 500 Index fell just 0.1% to 1,507 in New York, while the Dow Jones Industrial Average was also down 0.1 percent, to 13,942.

Amazon, the world's biggest online retailer, rose 4.5% after it reported a rise in both sales and North American operating margin.

One person probably not happy about Chesapeake Energy's 7.2% rise was Chief Executive Officer Aubrey McClendon, coming, as it did, on the back of the announcement of his retirement.

Economists had predicted GDP growth to the tune of around 1.1% but the number came in at -0.1% as huge defence cuts began to bite.

It was the first fall in US GDP in three-and-a-half years - the last drop was in the second quarter of 2009 when the country was in recession.

The latest figures showed government spending fell 6.6% in the fourth quarter, while companies cut back on inventories to the tune of 1.3%.

Trade also held the economy back, as exports fell 5.7% during the quarter.

One market commentator remarked that "the bulls are immortal".

However, another said the headline figure was misleading and the US economy was in better shape than it suggested.

In fact, Peter Newland at Barclays pointed out the tone of the report was positive when inventories and defence were excluded.

Private consumption growth picked up to 2.2% in Q4 from 1.6% in Q3.

Fixed investment saw growth jump from 0.9% to to 9.7% , reflecting gains in equipment and software (12.4%) and residential (15.3%), which more than offset a small decline in structures (-1.1%).

The ongoing bullish tone was supported by separate figures which showed a healthy rise in employment in the US.

Private-sector jobs in the country increased by 192,000 in January, according to a national employment report calculated by payroll processor Automatic Data Processing.

==================================================================== Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Daily FX & Market Commentary: Weaker than forecast consumer confidence number

Daily FX Commentary: (Morning Report)

EUR/USD 

The single currency remains in a near-term consolidative mode, following repeated failure at 1.3477 that keeps key 1.3500 zone intact for now. With the lower boundary of near-term range and 55 day EMA, coming under pressure, further easing is seen likely, as hourly studies are negatively aligned. From the other side, positive tone on 4h chart, keeps the upside in focus, with possible extension into 1.3400/1.3370, Fib 38.2% / 50% of 1.3264/1.3477, seen preceding fresh rally. Only slide below 1.3300, psychological support at Fib 38.2% of larger 1.2996/1.3477, would be harmful for near-term bulls. 

Res: 1.3459, 1.3477, 1.3485, 1.3490 
Sup: 1.3425, 1.3400, 1.3370, 1.3345 

GBP/USD 

Cable maintains negative near-term tone, with steady descent from 02 Jan’s peak at 1.6380, losing another support at 1.5700. Yesterday’s close below the latter, suggests further easing towards next targets at 1.5634 and 1.5600. Corrective bounce on oversold hourly conditions faces good resistance at 1.5745, previous low and 50% of 1.5825/1.5673 downleg, with 1.5800 zone expected to cap recovery attempts, as 4h studies remain in red. However, appearance of bullish divergence on 4h chart RSI and MACD, cannot rule out stronger rally that requires break above 1.5800/25 to confirm near-term base and put immediate bears on hold. 

Res: 1.5745, 1.5784, 1.5800, 1.5823 
Sup: 1.5673, 1.5660, 1.5634, 1.5600 

USD/JPY 

Hourly structure is neutral, as the pair moves within 90.40/91.00 range, following repeated failure at 91.00 yesterday. More downside risk is seen on 4h chart studies that are in descending mode, from overbought zone, with immediate risk seen on a break below 90.40/23, overnight’s low / 20 day EMA / previous high, as well as psychological 90.00 level, loss of which would trigger stronger corrective action. Conversely, regain of 91.00 would open 91.24 and possible resumption of larger uptrend. 

Res: 91.00, 91.08, 91.24, 91.50 
Sup: 90.58, 90.40, 90.23, 90.00 

USD/CHF 

Near-term bears remain in play, as the price slides after yesterday’s recovery failure on approach to psychological 0.9300 barrier, on recovery attempt from 0.9220, last Friday’s fresh low. With 61.8% of 0.9220/91 rally being retraced so far, immediate focus comes at 0.9220/00 support zone, loss of which to signal further retracement of the larger 0.9109/0.9387 rally that so far reversed 61.8%. Negative 1 and 4h chart studies support the notion and only sustained break above 0.9300 barrier, reinforced by daily Ichimoku cloud top, would ease immediate bear-pressure. 

Res: 0.9266, 0.9291, 0.9300, 0.9323 
Sup: 0.9245, 0.9220, 0.9200, 0.9175 



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Daily Market Commentary: (Evening Report)

London Market Report

London close: Markets at five-year high after US earnings

Market Movers

• techMARK 2,259.98 +0.13%
• FTSE 100 6,339.19 +0.71%
• FTSE 250 13,107.56 -0.19%

After a subdued morning session, the FTSE 100 rallied in afternoon trade to finish at its highest level since early 2008, helped by upbeat earnings from corporate heavyweights in the US.

The Dow Jones Industrial Average in New York was also trading at a five-year high today after pharmaceutical group Pfizer, refiner Valero Energy and home-builder DR Horton all topped analysts' estimates.

The FTSE 100 has extended gains seen since the start of 2013 and has now risen around 7.5% in January alone.

According to technical analyst Bill McNamara from Charles Stanley this afternoon: "the UK index isoverbought (its 14-day relative strength index is now above 80%) but that in itself does not represent a sell signal in a strong bull phase and it now looks pretty likely that we will see a test of the May 2008 peak, at 6,376, before this move reaches any kind of conclusion."

However, he warned that a correction – "when it comes" – will probably be "fairly sharp" after the Footsie's recent strong run.

The markets' focus is now starting to turn to tomorrow's economic growth data and a policy rate decision in the US. The world's biggest economy is expected to have grown at an annualised rate of 1.1% in the fourth quarter of 2012, according to preliminary estimates, well below the 3.1% growth in the third quarter.

Meanwhile, while the Federal Open Market Committee (FOMC) meeting is expected to be a "complete non-event", according to Jefferies, traders will keep an eye on any comments regarding the length of the current asset purchase programme.

Europe Market Report 

Europe midday: Spain must continue consolidation efforts, Minister says

- Spain´s tax revenues rose by 4 per cent in 2012
- Southern European countries have yet to regain competitiveness -IFO
- EU could soften Spain´s budget consolidation timeline

FTSE-100: 0.11%
Dax-30: -0.18%
Cac-40: -0.21%
FTSE Mibtel 30: -0.66%
Ibex 35: -0.56%
Stoxx 600: 0.00%

European equities are trading 'mixed' ahead of tomorrow´s US Federal Reserve policy meeting and a barrage of economic data due out in the rest of the week. Not least is the US monthly employment, which is scheduled for release this next Friday.

Of great interest, the European Union´s Economic Affairs Commissioner Olli Rehn yesterday signaled that the possibility exists that the EU might tolerate modifying the timeline for Spain to consolidate its budget.

Speaking today in Madrid however Spain´s Finance Minister, Cristobal Montoro, indicated that for now the above remains to be seen and efforts must be maintained to meet Brussels´s targets. In that same vein, Montoro added that Spanish tax revenues actually grew by 4.2% in 2012, reaching €168.67bn thanks to the new Budget consolidation measures put in place.

Also worth pointing out are the remarks to be heard this morning out of the German IFO Institute´s Chief Economist, Hans Werner Sinn, according to whom most southern European nations hit by the crisis have not yet undertaken sufficient measures so as to regain lost competitiveness.

Swedish tool and equipment maker Sandvik has reported fourth quarter profit of 728m kronor, missing the market's average forecast.

Software AG has reported fourth-quarter profit of €50.7m, missing analysts' estimates moderately. Revenue in the fourth quarter, however, came in at €276m, well below forecasts.

Spain's Telefonica has asked its banks to extend the maturity of €1.25bn ($1.7bn) of an existing €2bn loan that expires in July 2016, according to Reuters.

Still on the equity front, but from a sector stand-point, the best performing industrial groups are: Basic resources (0.89%), Oil (0.48%) and Telecommunications (0.43%).

Eurozone money supply below forecasts

The Gfk survey of German consumer sentiment improved slightly in February, to 5.8 after 5.7 in the month before.

Spanish retail sales fell by 10.7% year-on-year in December.

INSEE´s French consumer confidence index remained on an even keel in January, unchanged at 86 points, as expected.

Other asset clases steady

The euro/dollar is now falling by 0.01% to the 1.3450 dollar mark. 

Front month Brent crude futures are now lower by 0.071 dollars to the 113.40 dollar mark on the ICE.

US Market Report

Weaker than forecast consumer confidence numbers 
- Ford leads fallers on prediction of losses in Europe
- Oil stocks lead gains

Dow Jones Industrials: 0.43%
Nasdaq Comp.: -0.01%
S&P 500: 0.32%

The main US equity averages are trading in a mixed fashion following a similarly mixed string of corporate quarterly results.

Amongst the heavyweights whose earnings pleased investors were those from Valero, Peabody and US Steel.

Drugmaker Pfizer was also moving higher after forecasting a 2013 profit of up to $2.30 a share, higher than analyst estimates.

Poor guidance from the likes of International Paper and Lexmark, on the other hand, were weighing on stocks.

Ford plummeted after saying that it expects to lose about $2bn in Europe in 2013 as due to the recession afflicting the region.

From a sector stand-point the worst performers were: Automobiles (-3.72%), Recreational products (-2.63%) and Electronic Office Equipment (-2.06%).

House prices rose by 5.5% year-on-year in November according to the latest Case Shiller 20 city price index (Consensus: 5.6%).

The US Conference Board´s consumer confidence index for the month of January came in at 58.6 points, after an upwardly revised reading of 66.7 for the month before (Consensus: 64).

Front month West Texas crude futures rose by 1.18% to the 97.58 dollar per barrel mark on NYMEX.

10 year US Treasury yields gained 1 basis point, with yields at 1.97%. 

==================================================================== Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Weekly Market analysis - Fed minutes have injected a greater mood of uncertainty

Weekly Market analysis

Following the drama surrounding the US fiscal cliff talks, monetary and currency policies will remain a very important focus. The Federal Reserve will maintain a very loose monetary policy for now, butt he latest Fed minutes have injected a greater mood of uncertainty and the possibility of a tightening. TheBank of Japan will also be under intense pressure to boost policy further.  The ECB will also consider further action to underpin the economy which will ensure very loose monetary conditions and may serve to lessen the threat of a severe deterioration in risk appetite. Key events for the forthcoming week Date Time (GMT) Data release/event Friday January 4th 13.30 US employment report Thursday January 10th 12.00 Bank of England interest rate decision Thursday January 10th 12.45 ECB interest rate decision Dollar:  The US fiscal deal has eased immediate fears surrounding a disorderly policy tightening. Nevertheless, there will still be a significant policy tightening which will have some impact in curbing consumer spending growth.  The deal was also only a stop-gap measure and there will be further political confrontation surrounding spending cuts and the debt ceiling. There will be uncertainties surrounding the growth outlook and risk conditions. There is a very dovish Federal Reserve committee for 2013, but the latest minutes will spark some speculation that there will be some tightening later in 2013. Net longer-term yields should be dollar supportive for the US currency. After initial weakness following the US budget deal, the dollar found support near 1.33 against the Euroand rallied strongly against European currencies Following the deal to avert the immediate US fiscal crisis, there was a renewed consideration of the longer-term outlook. There were further concerns that the spending issue would have to be tackled again before the end of February and Congress will also have to tackle the debt-ceiling issue with the potential for further tense negotiations. There was some reassessment of risk considerations which also curbed dollar selling. As far as the US data releases were concerned, there was an increase in the ISM manufacturing index to 50.7 from 49.5 which provided some degree of relief. The ADP employment data was stronger than expected with a gain of 215,000 private-sector jobs for December from a revised 118,000 previously. Although there was a higher than expected release for jobless claims, there was greater optimism surrounding the US payroll report. The latest FOMC minutes stated that some members were concerned surrounding risks associated with further quantitative easing, especially as it would make it more difficult to secure an eventual exit strategy. In this context, several members wanted to scale-back bond purchases well before the end of 2013. There was still some degree of caution surrounding the labour market, but there was shift in expectations on potential tightening this year as markets had been primed for a very dovish tone.

Euro

Structural fears surrounding the Euro-zone have eased for now which will lessen the potential for aggressive selling pressure.  There will still be a high degree of unease surrounding the growth outlook and there will also be pressure for the ECB to relax monetary policy further.  The bank will still be uneasy over the prospect of negative deposit rates and there will also be opposition from the Bundesbank.  Any friction within the ECB will tend to undermine confidence in the Euro.  There is also less scope for capital repatriation which will tend to lessen scope for Euro buying and a Spanish aid request would be likely to provide only initial currency relief. The Euro was unable to sustain an initial advance following the New Year break and retreated sharply towards the 1.30 level against the dollar.   Italy’s lower house approved the 2013 budget in parliament and, as expected Prime Minister Monti submitted his resignation.  There were some suggestions that he could stand for election in forthcoming elections, but uncertainty remained high. The final Euro-zone PMI data was slightly weaker than expected with a dip to 46.1 from 46.3 as there was a dip in the German index with an improvement in the Italian index offset by a weaker Italian outcome. The data maintained some degree of unease surrounding the Euro-zone outlook which dampened Euro demand. There was some speculation that capital repatriation associated with the year-end Euro demand to bolster balance sheets had eased. An easing of flows could be significant in triggering a wider loss of Euro support. There was further speculation that the ECB could consider a cut in interest rates at the January meeting, but a higher than expected German inflation reading increased speculation that there would be Bundesbank opposition to any rate cut and there would also be unease within the Council over any move to set a negative deposit rate. Although a surprise decline in Spanish unemployment, provided some relief, there were concerns that the fall reflected longer-term unemployed leaving the labour market rather than any real improvement in conditions.  The German labour-market data was close to expectations with a 3,000 unemployment increase for December. The latest money-supply data recorded an eighth successive decline in private lending which maintained unease over the outlook, but there was a small increase in banking-sector deposits in Italy and Spain which provided some relief. Spain’s admission that it was using social security funds to buy government bonds also unsettled confidence and sparked expectations of a bailout soon. Yen:    There will be intense pressure for the Bank of Japan to engage in further aggressive policy easing with the next policy meeting due in the third week of January.  The government is also planning a further round of aggressive fiscal stimulus in an attempt to ease deflationary pressure. These factors combined will tend to have a negative impact on the yen, especially with a lack of confidence in the Japanese fundamentals. The Japanese currency will still gain some degree of support when risk appetite deteriorates and there will also be pressure for a limited correction after recent sharp losses. The yen remained extremely weak as it dipped to the lowest levels in more than two years against the dollar. Incoming Prime Minster Abe continued aggressive calls for deflation to be tackled and warned that he would look to change the central bank Act which ensures independence if the Bank of Japan fails to meet inflation targets. Expectations that there would be aggressive action to ease deflation risks through aggressive monetary and fiscal policies continued to have a negative impact on the yen.  Weak underlying yen sentiment was offset by pressures for a technical correction following sharp losses and the dollar consolidated above the 87 level with Japanese markets still closed for a holiday. The dollar found strong support on dips and pushed back above 87 with initial support from the stronger than expected US ADP report. There was further buying support following the Fed minutes with a shift in expectations. Japanese markets re-opened following the new-year break which triggered a fresh round of yen selling, particularly with a widening in yield spreads to the highest level since April. The dollar pushed to a fresh 29-month high above 87.75 against the Japanese currency.

Sterling There will be mixed expectations surrounding the UK outlook with a divergence in analyst expectations and mixed data. Overall, there is slightly reduced fear surrounding the threat of another slide into recession, especially with some evidence that consumer lending is improving. In relative terms, the UK currency will also gain some support on relative grounds with expectations of loose monetary policies in the US and Euro-zone.  The UK currency will tend to lose ground when risk appetite deteriorates and will struggle to make further significant headway against the US currency. Sterling initially spiked higher against the US currency following the New Year break before hitting strong selling pressure with a retreat to lows below 1.61 . The UK data was significantly stronger than expected with an increase in the PMI manufacturing datato 51.4 for December from a revised 49.2 the previous month which was the highest figure for 16 months. The data also provided some degree of optimism surrounding the UK economy which provided underlying Sterling backing. There was initial Sterling support from an improvement in international risk appetite as the UK equity market tested the highs from mid 2011, but there was a slightly more cautious tone later in the week which pushed Sterling lower. The latest PMI construction report was weaker than expected with a decline to a six-month low of 48.7 from 49.3 the previous month. The data dampened optimism triggered by the stronger than expected manufacturing release and the latest services-sector data will be watched very closely on Friday and will have an important impact on underlying sentiment. Swiss franc:  The National Bank will remain strongly committed to maintaining the 1.20 minimum Euro level in the short-term, especially with a strong determination to protect competitiveness and avert any serious deterioration in industrial conditions. Aggressive policy relaxation elsewhere will maintain the risk that upward pressure on the franc will intensify again as investors look for a safe-haven, especially if the Japanese yen is subjected to further selling. The Euro held relatively steady against the franc, but was unable to hold above 1.21. After finding support around seven-month lows, the US currency pushed to a fresh 3-week high above 0.9280 as the dollar secured wider support. The latest PMI report recorded an increase to 49.5 for December from 48.5 previously. In contrast, the latest KOF index retreated to 1.28 for the month from 1.50 previously which will maintain unease surrounding business confidence and pressure for franc gains to be resisted. Australian dollar The Australian dollar continued to probe resistance above 1.05 against the dollar, but it was unable to sustain the gains and retreated back to below this resistance area late in the week. The currency drew initial support from gains in risk appetite following the US fiscal deal before the mood turned more cautious again as enthusiasm faded. There was a slightly more optimistic tone surrounding the Chinese outlook which provided some support for the Australian currency. The domestic PMI indices were still generally lacklustre amid fears over a further slowdown with a significant deterioration in the services-sector index. Despite potential reserve diversification, the Australian dollar will find it difficult to sustain gains, especially as Chinese economic sentiment is liable to deteriorate again. Canadian dollar:  After finding support on dips towards parity, the Canadian dollar was able to recover ground and move back to the 0.9840 area on a general improvement in risk appetite following the US fiscal deal. The US currency was resilient at lower levels and moved higher as markets turned significantly more cautious while the Fed minutes provided net US support. Even with near-term resilience and optimism surrounding the fundamentals, the Canadian dollar will find it difficult to sustain any significant gains.  ==================================================================== Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Weekly FX & Market Analysis

Weekly Market analysis

Monetary policy will remain a very important focus following the Federal Reserve decision to sanction additional quantitative easing during 2013.  There will be further resistance to currency gains by Japanese and also potentially the Euro-zone and this will increase the risk for further more aggressive monetary policy action by the Bank of Japan and ECB. Overall, the dollar will find it difficult to make much headway unless there is a serious deterioration in international risk appetite. Key events for the forthcoming week Date Time (GMT) Data release/event Sunday December 16th Japan general election Wednesday December 19th 09.00 Germany IFO index Wednesday December 19th 09.30 Bank of England MPC minutes Thursday December 20th Bank of Japan interest rate decision Dollar: The Federal Reserve policies will remain an extremely important focus in the short-term. The decision to expand quantitative easing will tend to have a negative impact on the dollar.  The Fed is also committed to maintaining a highly expansionary monetary policy until there is a further marked improvement in the unemployment rate with a decline to at least 6.5%.  In this context, the dollar will find it difficult to gain any strong traction, but there will be some reward in terms of pro-growth policies and likely US growth out-performance. This will be a particularly significant factor if Euro-zone conditions deteriorate further. The dollar weakened against European currencies during the week on additional Fed action, but did show some degree of resilience.   The headline US employment data was stronger than expected with an increase of 146,000 for November from a revised 138,000 gain the previous month while the unemployment rate dipped to 7.7% from 7.9% the previous month. There was a downward revision to October’s payroll gain while the participation rate fell. The US trade deficit widened to US$42.2bn for October from US$40.3bn the previous month as exports were slightly weaker, although there may have been data distortions. The Federal Reserve left interest rates on hold at below 0.25%  following the latest policy meeting. The Fed announced that it would buy an additional US$45bn in Treasuries per month to replace Operation Twist which was in line with market expectations. As has been the case throughout the year, regional Fed President Lacker dissented and voted against further quantitative easing. The Fed downgraded its 2013 growth forecasts slightly. There was an important shift in forward policy guidance as the FOMC dropped the reference to a specific timeframe for keeping interest rates at extremely low levels until 2015. Instead, the Fed announced that it would introduce economic targets for keeping policy extremely expansionary. In particular, the threshold for a policy change would be an unemployment rate of 6.5% and policy would remain extremely expansionary provided the inflation rate did not rise to above  2.5%. There were no significant progress in the US budget talks and concerns surrounding the risk that no agreement would be reached before the year-end deadline. Euro There will be further relief surrounding the ability to defuse the acute Euro-zone crisis phase with agreement secured on the next Greek loan tranche while peripheral bond yields have fallen. There will still be a high degree of unease surrounding the underlying economic outlook, especially with recession conditions persisting.  Political tensions will also be very important with unease surrounding Italian elections early in 2013.  The underlying peripheral situation also remains extremely fragile and longer-term fears will continue.  There will also be speculation over a cut in ECB interest rates which will sap Euro support.  The Euro recovered some ground although this primarily reflected general dollar weakness rather than any great enthusiasm for the currency. Interest rate remained an important focus following Thursday’s ECB press conference where Draghi indicated that a rate cut had been discussed. There were unofficial briefings from ECB officials during the day, an unusual event in itself. There were suggestions that a majority of Council members had either proposed a rate cut or not been opposed and that a decision to cut rates had been blocked by Draghi and the German representatives. The overall impression was that rates could well be cut during the first quarter of 2013 which also had a negative Euro impact. Italian political tensions remained an important focus following Prime Minster Monti’s announcement that he would resign once the 2013 budget has been approved. The most likely outcome is that elections will be held in February which fuelled the mood of uncertainty. There were concerns that reforms could be in doubt with former Prime Minister Berlusconi’s intention to stand contributing to the mood of uncertainty. Stock markets fell sharply and there was a surge in bond yields with Spanish yields also rising sharply. Tensions did subside later in the day as Monti looked to offer reassurance over reforms. The German ZEW index was stronger than expected with a rise to 6.9 for November from -15.7 previously which was the strongest reading for seven months. The ZEW also stated that it considered the recent Bundesbank and ECB forecasts to be on the pessimistic end of the spectrum. There was some positive sentiment surrounding the Greek debt buyback, although the Greek government did have to pay more than expected which means that the decline in debt/GDP ratio will be slightly below target. There was a slightly more cautious outlook on the potential for a cut in ECB interest rates and there was some speculation that former Prime Minister Berlusconi would not stand in forthcoming elections.  The Euro-zone agreed on a framework for the new banking supervisor. Yen: The LDP, continues to hold a comfortable opinion-poll lead ahead of the December 16th General Election, maintaining expectations that there will be a much more aggressive monetary policy and potential changes to the Bank of Japan mandate next year. These expectations will undermine the yen, but there will still be the possibility of political deadlock which could delay additional policy measures. The yen will also gain defensive support at times when risk appetite deteriorates, but the underlying fundamentals will remain weak. The yen was firmly on the defensive during the week and weakened to fresh nine-month lows near 84 against the US currency while the Japanese currency also weakened sharply against the Euro. There were media reports that the Bank of Japan would sanction a further JPY5-10trn in quantitative easing at next week’s policy meeting which contributed to a negative yen tone There were further expectations that the LDP would win the forthcoming election and would also put additional pressure on the central bank to take more aggressive action. A slightly weaker than expected monthly increase of 2.6% for core machinery orders did not have a major market impact while the Tankan index was weaker than expected. A North Korean missile launch had some negative impact on the yen. Sterling There will be further doubts surrounding the UK economic outlook, especially with evidence that industrial output weakened sharply at the beginning of the fourth quarter.  The weak outlook will increase concerns surrounding the underlying fiscal outlook and also maintain pressure for the Bank of England to boost quantitative easing further.  Sterling will gain some degree of support on relative grounds given the aggressive Federal Reserve policy and the prospect of further ECB action. Nevertheless, Sterling is likely to be generally vulnerable given the UK fundamentals and credit-rating downgrade fears. Sterling was resilient against the US currency during the week, but struggled to break above the 1.6150 area and edged weaker against the Euro. The latest industrial data was sharply weaker than expected with a 0.8% decline in industrial production for October compared with expectations of a monthly rebound following the 2.1% drop seen in September. The data increased unease surrounding the fourth-quarter outlook and reinforced fears surrounding the economy as a whole. The NIESR estimated a growth rate of 0.1% in the three months to November with the October reading revised down sharply to 0.1% from 0.5%. The latest labour-market report was stronger than expected as the jobless claimant count fell by 3,000 compared with a revised gain of 6,000 the previous month.  The unemployment rate also held steady at 7.8% for October, in contrast to expectations of a small increase. Earnings growth was capped below 2.0% which maintained concerns surrounding the outlook for consumer spending. The prospect of further quantitative easing by the Federal Reserve, allied with speculation that the ECB would relax monetary policy further, had an impact in underpinning Sterling despite unease surrounding the growth outlook. There will be additional pressure on the Bank of England to take additional action. There was a warning from Standard & Poor’s that it was revising the AAA credit rating to negative from stable, reinforcing fears that one or more of the main rating agencies would downgrade the UK sometime during 2013. Swiss franc: The National Bank will remain strongly committed to maintaining the 1.20 minimum Euro level in the short-term. There will be further concerns surrounding the build-up of reserves, but there will also be a very strong determination to resist franc appreciation, especially with competitiveness still a key issue. Aggressive policy relaxation elsewhere will maintain the risk that upward pressure on the franc will intensify again. The dollar was on the defensive against the franc and retreated to lows below 0.9250. There were no surprises from the Swiss National Bank policy meeting with interest rates left on hold below 0.25% while the minimum 1.20 Euro level was also maintained. The central bank continued to insist that franc gains would be resisted with all necessary force. The latest producer prices data recorded no change in prices with a 1.2% annual increase which may ease deflationary pressure slightly.  The Euro retreated to lows in the 1.2080 area with disappointment that there was no suggestions of additional measures to weaken the franc and the dollar dipped to lows below 0.9250. There was a small recovery in the Swiss ZEW index to -15.5 the previous month Australian dollar The Australian dollar pushed higher with a move above the 1.05 level against the US currency. There were expectations that the Australian currency would gain support from international reserves diversification although there was also pressure for the central bank to act to restrain the currency as it remains substantially overvalued. The domestic data releases did not provide any support for the currency with a sharp decline in business confidence and consumer sentiment according to the latest surveys. A decline in gold prices was also a negative factor for the currency. The Australian dollar will gain support from reserve diversification, but there will still be resistance to gains with the Reserve Bank under pressure to intervene. Canadian dollar: The Canadian dollar was able to resist any significant weakness and strengthened to highs near the 0.9820 region against the US currency. The trade account was slightly stronger than expected, although the overall impact was very limited and there was some decline in gold prices which took the edge of the currency performance. Even with near-term resilience and optimism surrounding the fundamentals, the Canadian dollar will find it difficult to advance from current levels. ==================================================================== Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Daily FX & Market Commentary - 'Fiscal cliff' concerns keep markets under pressure

Daily FX Commentary: (Morning Report)

EUR/USD

The Euro continues to travel higher, as bullish technicals were additionally underpinned by Euro-supportive fundamentals that resulted in a rally to psychological 1.3100 barrier so far. Key resistances at 1.3125/38/70, 05 Dec / 17 Oct / 17 Sep peaks, are in near-term focus, with bullish structure being supported by three white soldiers reversal pattern, formed from 1.2900 base. Corrective actions on overbought hourlies were so far contained by ascending 20 day EMA at 1.3055, with any stronger dips, expected to find ground above 1.3020/00 support zone.

Res: 1.3013, 1.3030, 1.3041, 1.3066
Sup: 1.2995, 1.2970, 1.2950, 1.2927


GBP/USD

Cable maintains positive structure, as yesterday’s break and close above strong 1.6127/29 barrier, keeps near-term bulls firmly in play. Immediate upside targets at 1.6175 and 1.6200 come under pressure, as the pair reached 1.6170 so far. With technical correction finding footstep at previous strong barrier, and near-term studies holding in the positive territory, fresh attack towards 1.6200 barriers is seen likely. Initial supports lie at 1.6125 and 1.6112, while violation of 1.6100, yesterday’s low, would delay bulls andsignal stronger corrective action.

Res: 1.6150, 1.6175, 1.6200, 1.6216
Sup: 1.6124, 1.6112, 1.6100, 1.6060 


USD/JPY

The dollar/yen, as top yesterday’s performer, eventually broke above range top and psychological barrier at 82.83/83.00, resuming larger uptrend from 77.12, 13 Sep low. With fresh gains reaching 83.66 high so far, keep the positive structure for attempt at our target and key barriers at 84.08/17, yearly highs. However, stronger corrective action could be anticipated, as both 1 and 4h studies are deeply in overbought zone, with hourly indicators starting to descend. Previous strong barrier at 82.80, now acts as initial support, with deeper reversal, expected to find ground at/above 81.90/70, Fib 38.2% of 79.06/83.66 / previous range floor.

Res: 83.66, 84.00, 84.08, 84.17
Sup: 83.46, 83.30, 83.10, 83.00


USD/CHF

Near-term bears took control, following recovery failure on approach to 0.9400 barrier and subsequent slide through psychological 0.9300 support that resulted in re-test of 0.9239, 03 Dec low. Completion of near-term corrective action, bring focus to the downside, as a part of larger downtrend from 0.9970, with immediate focus at 0.9213, 17 Oct low. Violation of the latter to resume the downtrend and expose 0.9150/00 zone next. With negative tone dominating on lower timeframes studies and brief corrective action being capped by 10 day EMA at 0.9270, the upside remains protected for now. Only lift above previous strong support zone at 0.9300/20, would provide temporary relief.

Res: 0.9270, 0.9292, 0.9300, 0.9320
Sup: 0.9255, 0.9239, 0.9213, 0.9200 

====================================================================


Daily Market Commentary: (Evening Report)

London Market Report

'Fiscal cliff' concerns keep markets under pressure

    Market Movers
    techMARK 2,123.48 -0.40%
    FTSE 100 5,929.61 -0.27%
    FTSE 250 12,211.57 -0.10%

Stocks markets across Europe took a breather on Thursday, following a strong performance over the last month, as investors digested stimulus plans by the Federal Reserve and ongoing developments in the Eurozone.

The Footsie finished the day slightly lower, pulling back after setting a new nine-month high at 5,946 the day on Wednesday (the last time the index closed higher was on March 19th at 5,961).

Market analyst Michael Hewson from CMC Markets said today that a “trifecta of positive factors” managed to underwhelm the market this afternoon:

“Three news items that ordinarily would have given markets a significant boost appear to have done anything but today, despite the Fed acting as expected by announcing a new round of asset purchases to the tune of $45bn, and EU leaders agreeing a framework towards a banking union inside their self-imposed deadline of year end, while Greece finally had its long awaited aid tranche finally approved by EU leaders,” Hewson said.

The Footsie staged a slight rally in afternoon trade following some better-than-expected jobless claims data Stateside.

However, as he often has done in the past few weeks, House Speaker John Boehner dampened market sentiment before the close after attacking the Obama administration, saying that the White House is not serious about cutting spending to avert the ‘fiscal cliff’.

“Unfortunately, the White House is so unserious about cutting spending that it appears willing to slow-walk our economy right up to - and over - the fiscal cliff,” Boehner said in a press conference this afternoon.

Europe Market Report 

European Markets Pulled Back On Fiscal Cliff Concerns

The European markets finished in the red on Thursday, as concerns over the looming fiscal cliff in the United States dominated trade. Comments made by Fed Chairman Ben Bernanke at the conclusion of the FOMC's 2-day meeting yesterday raised concerns regarding the potential damage that the stalemate over the issue is causing.

The U.S. Federal Reserve, at the end of the two-day meeting on Wednesday, said it would replace its "Operation Twist" program, which expires at the end of the year, with the purchase of longer-term Treasury securities at a pace of $45 billion per month. The central bank also said it would continue to purchase additional agency mortgage-backed securities at a pace of $40 billion per month.

In a departure from its earlier pledge to keep interest rates at historically low levels until mid-2015, the Fed will hold off on rate hikes until the unemployment rate falls to 6.5 percent. Policy makers do not see the unemployment rate falling to 6.5 percent until 2015.

Fed Chairman Ben Bernanke warned that Fed support cannot fully offset the downside risks presented by the so-called fiscal cliff. Bernanke expects Congress to reach a deal, but noted that inaction has already resulted in a troubling drop in business confidence.

Finance ministers from the 27 European Union states on Thursday finalized an agreement, giving the European Central Bank more powers to oversee the functioning of banks in the crisis-hit region. The decision came ahead of the two-day EU summit in Brussels starting today.

The ministers plan to make the supervisory system fully operational by March 2014 or 12 months after the entry into force of the legislation, whichever is later, according to statement issued after the meeting.

The Single Supervisory Mechanism (SSM) will be composed of the ECB and national competent authorities. As the chief watchdog, the ECB will be responsible for the overall functioning of the SSM and will have direct oversight of Eurozone banks, but "in a differentiated way and in close cooperation with national supervisory authorities," the ministers said in the statement.

Eurozone finance ministers, collectively known as the Eurogroup, finally approved the release of a second disbursement of bailout funds to Greece on the completion of the government's debt buyback operation.

At its meeting in Brussels on Thursday, Eurogroup authorized the bailout fund, the European Financial Stability Facility (EFSF), to release the next installment for a total amount of EUR 49.1 billion. The disbursement will be made in several tranches.

Greece will receive EUR 34.3 billion in the following days. The remaining amount will be disbursed in the first quarter of 2013.

Ernst & Young on Thursday said the euro area will enter 2013 with a brighter outlook than twelve months ago. The region is painfully progressing to stability, E&Y commented.

According to E&Y Eurozone Forecast, or EEF, the region will shrink 0.2 percent next year, but there will be a modest pickup from 2014 to 2016 of 1.3 percent a year. Similar growth rates are expected for the remainder of the decade.

The Euro Stoxx 50 index of eurozone bluechip stocks declined by 0.27 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, lost 0.44 percent.

The DAX of Germany fell by 0.43 percent and the CAC 40 of France decreased by 0.10 percent. The FTSE 100 of the U.K. dropped by 0.27 percent and the SMI of Switzerland finished lower by 0.57 percent

US Market Report

Stocks Seeing Modest Weakness Amid Fiscal Cliff Worries

Stocks have moved modestly lower over the course of the trading day on Thursday after initially showing a lack of direction. Lingering concerns about the looming fiscal cliff are weighing on the markets despite a batch of largely upbeat economic data.

The major averages moved roughly sideways in recent trading, stuck modestly below the unchanged line. The Dow is down 24.96 points or 0.2 percent at 13,220.49, the Nasdaq is down 7.85 points or 0.3 percent at 3,005.96 and the S&P 500 is down 3.49 points or 0.2 percent at 1,424.99.

The modest weakness on Wall Street comes as lawmakers in Washington continue to struggle to reach an agreement to avoid the fiscal cliff.

House Speaker John Boehner, R-Ohio, once again accused President Barack Obama of failing to provide a serious offer, claiming that the White House is not offering enough in spending cuts.

Boehner has made similar remarks for several days, while Democrats continue to attack the GOP for being unwilling to accept higher tax rates on wealthy Americans.

The worries about the fiscal cliff have overshadowed some upbeat economic data, including a report from the Labor Department showing that weekly jobless claims pulled back near a four-year low.

The report showed that jobless claims fell to 343,000 in the week ended December 8th, a decrease of 29,000 from the previous week's revised figure of 372,000. Economists had expected jobless claims to come in unchanged compared to the 370,000 originally reported for the previous week.

With the unexpected decrease, jobless claims fell to their lowest level since dropping to a four-year low of 342,000 in the week ended October 6th.

A separate report from the Commerce Department showed weaker than expected retail sales growth in the month of November, although a sharp drop in sales by gas stations offset strength in other sectors.

The report showed that retail sales increased by 0.3 percent in November following a 0.3 percent decrease in October. Economists had been expecting retail sales to increase by about 0.6 percent.

Excluding a 4.0 percent drop in sales by gas stations, retail sales rose by 0.8 percent in November compared to a 0.5 percent drop in October.

Traders also continue to digest yesterday's news that the Federal Reserve plans to replace its "Operation Twist" program, which expires at the end of the year, with the purchase of longer-term Treasury securities at a pace of $45 billion per month.

Other Markets In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Thursday. While Japan's Nikkei 225 Index surged up by 1.7 percent, Hong Kong's Hang Seng Index fell by 0.3 percent. In the bond market, treasuries are seeing modest weakness, extending the downward move seen following yesterday's Fed announcement. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 2.3 basis points at 1.72 percent. ==================================================================== Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Daily FX & Market Commentary - Fed replaces Twist & sets explicit targets

Daily FX Commentary: (Morning Report)

EUR/USD

The single currency sustains break above 1.3000 barrier, as clearance of Fib 61.8% at 1.3030, tested 1.3050 so far. Strong bullish posture of 4h studies, sees bulls in play for test of 1.3085/1.3100 barriers, above which the way will be opened for test of key barriers at 1.3125/38, 05 Dec / 17 Oct peaks. Gains would be delayed by corrective action on overbought hourly studies, with strong support and higher platform at 1.3000, reinforced by ascending 55 day EMA at 1.2990, expected to contain. Daily close above 1.3030 to confirm bullish structure off 1.2900 base and confirm daily three white soldiers reversal pattern.

Res: 1.3013, 1.3030, 1.3041, 1.3066
Sup: 1.2995, 1.2970, 1.2950, 1.2927 

GBP/USD

The pair resumes rally from 1.6000 base, clearing 1.6127/29 double-top and Fib 61.8%, extending gains to 1.6150 zone so far. Subsequent pullback on overbought hourlies, sees good support at 1.6100, near Fib 38.2% of 1.6000/1.6150 / 55 day EMA, however, caution is required, as 4h indicators are reversing that would trigger stronger correction. Below 1.6100, supports lie at 1.6070/50, loss of which would delay bulls. Larger picture outlook remains firmly bullish and favors near-term extension towards 1.6175/1.6200 barriers.

Res: 1.6129, 1.6150, 1.6175, 1.6200
Sup: 1.6100, 1.6090, 1.6060, 1.6050


USD/JPY

The pair cracked three-week barrier and range top at 82.83, to approach psychological 83.00 barrier. Gains were limited by overextended hourly studies, however, strong bullish tone on 4h chart, suggests that extension through 83.00 is likely. Immediate upside target lies at 83.26, 02 Apr high, ahead of yearly highs at 84.08/17, posted in March. Any dips should be contained at 82.50 zone.

Res: 83.00, 83.29, 84.08, 84.17
Sup: 82.79, 82.63, 82.52, 82.32 


USD/CHF

The pair has lost ground, as strong support at 0.9320/00 zone gave way and dips reached levels close to Fib 76.4% retracement of corrective 0.9239/0.9381 rally. Failure to regain important 0.9400 resistance zone, stalling at 50% of 0.9511/0.9239 descend and subsequent reversal that accelerated on a loss of 0.9320/00, revived bears for possible re-visit of 0.9239, 03 Dec low. With hourly studies deep in negative zone and 4h indicators breaking below the midlines, downside remains in near-term focus. Previous strong supports now act as resistance and only clear break and close above 0.9320/30 zone, would avert immediate downside risk.

Res: 0.9300, 0.9320, 0.9335, 0.9367
Sup: 0.9275, 0.9254, 0.9239, 0.9213

====================================================================


Daily Market Commentary: (Evening Report)

London Market Report

Stocks rise as investors await the FOMC

Market Movers
techMARK 2,132.04 +0.18%
FTSE 100 5,945.85 +0.35%
FTSE 250 12,224.31 +0.28%

UK stocks finished Wednesday's session with decent gains, extending its recent winning streak into its sixth day, with investors widely expecting the US Federal Reserve to reveal more stimulus measures in the coming hours.

The Footsie closed at its highest level since March 19th when it finished the session at 5,961.

It is predicted that the Federal Open Market Committee (FOMC) meeting will culminate with the announcement of a new long-term bond purchase programme valued at $45bn per month as 'Operation Twist' comes to an end.

Some 48 out of 49 analysts surveyed by Bloomberg are expecting new stimulus on top of the $40bn monthly mortgage-bond buying programme announced in September, commonly referred to as QE3 (third round of quantitative easing).

While optimism over the 'fiscal cliff' has increased slightly over the last few days, House Speaker John Boehner, who has talked this week with President Barack Obama, said that their two parties still have “serious differences" on resolving the issue.

“His remarks, although not enough to send markets spiral downward, do reinforce the discord between Republicans and the White House. The focus is now on the US Fed’s policy to see if it could provide some joy – due out after the European closing bell,” said market strategist Ishaq Siddiqi from ETX Capital.

Helping provide a lift to sentiment this morning was positive employment data in the UK (jobless claims fell 3,000 in November, better than the 6,000 increase expected), while a bond auction in Italy went relatively ‘smoothly’ in spite of the current political uncertainty.

Europe Market Report 

European Markets Exercised Caution Ahead Of Fed Announcement

The European markets largely ended Wednesday's session with modest gains, as investors played it cautious ahead of the impending announcement from the Federal Reserve in the U.S. European finance ministers are also meeting today to discuss bank supervision and financial reform.

The Federal Open Market Committee will conclude its 2-day meeting after the European close. The Fed is expected to announce further stimulus, as Operation Twist is set to expire after 2012. Investors will be watching what the Fed will say regarding its forecast for economic growth, unemployment, inflation and interest rates.

North Korea successfully launched a satellite carrying rocket early Wednesday, which the West and several other countries believe was aimed at testing a long-range missile. The U.S., Japan and South Korea have called for a meeting of the U.N. Security Council to discuss North Korea's defiance in launching the rocket despite the international community's request to desist from the move.

The stickiness in U.K. inflation may persist for a while, Bank of England Chief Economist Spencer Dale said Wednesday. In a speech in London, he said the stickiness of inflation is a by-product of the real adjustment that economy has been forced to make and there is no easy fixes to such real adjustments.

The Euro Stoxx 50 index of eurozone bluechip stocks increased by 0.23 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, added 0.16 percent.

The DAX of Germany climbed by 0.31 percent and the FTSE 100 of the U.K. rose by 0.33 percent. The CAC 40 of France gained 0.01 percent, but the SMI of Switzerland lost 0.21 percent.

Industrial production in Eurozone declined for a second consecutive month in October, but at a slower pace compared to the previous month, data released by Eurostat showed Wednesday. Production dropped 1.4 percent month-on-month in October after a 2.3 percent fall in September. Economists expected no change in production volume.

Germany's harmonized index of consumer prices rose less than estimated in the preliminary report in November, final figures published by the Federal Statistical Office showed Wednesday. The HICP inflation was 1.9 percent in November, a tad below 2 percent reported initially. On a monthly basis, HICP fell 0.2 percent compared with 0.1 percent fall reported earlier.

France's harmonized inflation eased more than expected in November on a renewed drop in petroleum product prices, the statistical office Insee said Wednesday. Inflation fell to 1.6 percent from 2.1 percent in October. The inflation rate was forecast to ease to 1.8 percent.

France's current account deficit narrowed in October, mainly due to increase in surplus on trade in services, data from Bank of France showed Wednesday.

The deficit fell to EUR 2.8 billion in October from EUR 3.4 billion in September. According to the central bank, the improvement is mainly due to an increase in surplus on services trade to EUR 2.8 billion from EUR 2.1 billion.

U.K. claimant count declined unexpectedly in November and employment reached a record through the three months to October, confounding the weakness in economic activity.

Claimant count dropped by 3,000 month-on-month to 1.58 million in November, the Office for National Statistics said Wednesday. Economists had forecast the figure to rise by 7,000. Claims rose by 6,000 in October, instead of the initially reported 10,100.
 

US Market Report

Stocks Turning In Lackluster Performance Ahead Of Fed

With traders reluctant to make any significant moves ahead of the Federal Reserve's monetary policy announcement, stocks are turning in a lackluster performance in mid-day trading on Wednesday after failing to sustain an initial upward move.

The major averages currently continue to linger near the unchanged line, turning in a mixed performance. While the Nasdaq is down 3.21 points or 0.1 percent at 3,019.09, the Dow is up 4.23 points or less than a tenth of a percent at 13,252.67 and the S&P 500 is up 1.98 points or 0.1 percent at 1,429.82.

The choppy trading on Wall Street comes ahead of the Federal Reserve's latest decision on monetary policy, which is due to be announced at about 12:30 pm ET.

Many analysts expect the Fed to announce a new round of Treasury securities purchases to replace its "Operation Twist" program, which expires at the end of the year.

Following the announcement, traders are likely to keep an eye on Fed Chairman Ben Bernanke's accompanying press conference.

Peter Boockvar, managing director at Miller Tabak, said, "We'll hear again from the 4th branch of government today, the Federal Reserve, to tell us their plan to replace the upcoming expiration of Smother the Yield Curve."

"Between Fed speeches and WSJ articles, it seems likely that we'll get $45 billion per month of unsterilized Treasury purchases, thus bringing the monthly dose of electronically printed money to $85 billion including the ongoing MBS program."

Traders are also keeping an eye on developments in Washington, as lawmakers continue to struggle to reach an agreement to avoid the looming fiscal cliff.

House Speaker John Boehner, R-Ohio, accused President Barack Obama of failing to put forth a "balanced" plan, while Senate Majority Leader Harry Reid, D-Nev., warned that the U.S. will go over the cliff unless Republicans agree to raise tax rates on wealthy Americans.

On the economic front, the Labor Department released a report showing that U.S. import prices fell by much more than anticipated in the month of November, with the decrease largely due to a drop by fuel import prices.

Other Markets In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index rose by 0.6 percent, while Hong Kong's Hang Seng Index advanced by 0.8 percent. In the bond market, treasuries are lingering near the unchanged ahead of the Fed announcement. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is up by less than a basis point at 1.657 percent. ==================================================================== Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.