Rallying Euro..what’s the fuel ?

Today’s rally in the Euro is on the back of slightly more favourable conditions emanating from Portugal, in that they may not need financial support from the rest of Europe…for the moment.
It is likely the professional speculators have been running short positions in the EUR/USD contract and may have needed to cover their positions as the price has recovered, providing extra stimulus to the upside. Technically the EUR/USD price has reached a resistance level on the charts at 1.3450, so the price may take a breather here. Long term the professional traders are likely to continue to look for further weakness; with 1.22 a target if Portugal and more importantly Spain seek help.
The fact that countries outside Europe are looking to support the weaker Eurozone countries is definitely a factor to consider. Although external support could be considered a positive, it does not give off the right signals that the Eurozone cannot ultimately support itself. In the short term, as long as Portugal refrains from seeking help, the EUR/USD price may retest the key resistance level at 1.3450; a break above which may catapult the price short term towards 1.3650.

Precious Metals may be the best alternative

Renewed uncertainty likely to refuel demand for Precious Metals.
After a relatively quiet first week of 2011, there are rumbling undertones of uncertainty emerging.
Eurozone sovereign-debt concerns and a slower than expected recovery in the US economy are the core reasons why investors may flood back into Gold.
Gold has rallied for 10 consecutive years and there appears to be no reason why 2011 should be any different. With little obvious choice of where to invest, Gold may come up high on the lists for Alternative Investments.
The spot price price of Gold reached an all time high of over $1,430 an ounce last month and then took a breather as end of year profit takers pushed the price back down to its current level of $1,380 an ounce.
If signs of recovery do falter, then Gold and Silver may well be the first choice for investors – all eyes on economic releases over the coming weeks…

Happy New Year !

Global equity markets start the year with a bumper rally. Kick started by a 100 point rally on Wall Street yesterday, the Far East equity exchanges also saw gains with the Hang Seng gaining almost 150 points (0.59 %) and the Nikkei 225 170 points (1.65%); Historically, traders believe that any rally at the start of the year should set the tone for the rest of the year. That is likely to hold true, but maybe only for the first quarter as austerity measures are likely to bite in a few months time in certain Western countries.

Divergence between some global economies is likely to be the headline theme for most of the year. The problem is, which economies are going to prosper and which will suffer ?

It is fair to say that the German economy is likely to continue to diverge from (outperform) other European economies, particularly the Mediterranean ones (excluding France). Also Far Eastern economies are likely to outperform Western economies for most of the year.

With many commodities finishing the year on their highs, continuing gains are likely for the first few months of 2011, partly spurred by the threat of inflation. Government bonds should also continue their downward spiral as higher interest rates loom.

So the trends seen in Q4 2010 should continue throughout Q1 2011; however the moment Western interest rates increase, pressure will exert itself on the debt ridden consumer which may well dampen the corporate led recovery we have seen in the last few months.