Some glimmers of hope for the eurozone were on display yesterday when a few important bond auctions were successfully undertaken. 

Spain and Portugal have managed recently to find buyers of their debt whilst at the same time keeping their interest rates low and this has all assisted in a shift in sentiment that seems to have been building so far this year. This has come as a big surprise to many investors who on the whole seem to remain largely sceptical of this current strength in equity markets and certainly this is the case with regards to our clients.  They have opposed this rally throughout the past few weeks only benefiting from last Friday’s little hiccup following France’s downgrade which didn’t last all that long.

Now that the FTSE has broken through and closed above the 5700 to 5720 area the next target for the bulls is October’s high around 5770.  The grind higher is not the most convincing of rallies but it shows that bit by bit risk appetite for equities is building amongst investors.  Last night’s strong close by the Dow is also assisting European markets to continue in their upward fashion and so the FTSE has opened at 5740 this morning.  

This puts the index firmly above its 200 day moving average on the daily chart, in a similar club to the US markets which are sailing higher.  For the Dow the index is now only a few hundred points off the highs it recorded last year and even that wasn’t a mile off its all time highs back in 2007.  Some might even suggest that US markets are simply continuing on with the bull market that started back in 2009, following a little blip last year.

The German Dax is also enjoying rally after rally as it is now some 10% in the black so far in 2012.  It is now on the cusp of getting itself back above its 200 day moving average which it last saw back in August of last year.  Over the long term this is a significant achievement as it is seen as marking the end of the bear market that had looked to have set in from the middle of last year.  As all technical analysts know however, markets can give false signals from time to time, so we will have to see further strength before we can be certain that the bulls are still running.

This morning’s economic data highlight is UK retail sales which are expected to get a boost from the Christmas period.  Even though the high street is suffering and many well known chains have fallen by the wayside, those retailers that are still attracting the shoppers with their huge discounts are revealing some decent numbers.  On the whole the retail reporting season has been decent, with the exception of Tesco, so the number today should be a rare positive one.  At lunchtime the US reveals existing home sales so there could be some action then too.

The euro has caused some pain for those bears that have been enjoying the recent downward trend in the single currency.  Yesterday saw EUR/USD jump and continue to go higher throughout the day with the pair at one stage looking like it might even get back to 1.3000.  The general risk on trade yesterday supported the single currency and this morning we’re seeing EUR/USD at 1.2950.  For now it has broken the back of the downward trend that had set in since November but the jury is still very much out as to whether this can be maintained.  Near term support and resistance are seen at 1.2860/00 and 1.3000/15 respectively.

The euro’s strength has allowed it to get the better than of sterling causing GBP/EUR to crash back down below 1.2000.  This morning the pair is at 1.1960 finding a bit of support, but a break below here might open up 1.1900.

Gold did not benefit in the same way as other risk assets and couldn’t sustain its strength from earlier in the day.  This morning the precious metal is at 1654, so for now the short term trend remains intact and the bulls will be looking for a test of resistance around 1670/80 whilst they’ll be hoping support at 1639/25 will hold up.