Daily Market Review 1.7.09

Are You Prepared?

U.S Stocks finished in red yesterday, but closed one of their best quarters, in over a decade. The S&P500’s drop in the first quarter was completely virtually erased during the months of April through June, as the index climbed back to the 900 level, after reaching a low of 666.79 points. Even though analysts are still debating whether are the markets are going to head to higher levels, one must note that the major indices continue to maintain their current levels and strength, failing to give way to selling pressure.

After nearly a week of gains, stocks let off some steam during yesterday’s session, closing with an average loss of 0.8%. Consumer confidence was the culprit this time round, showing a drop from its previous 54.80, releasing a 49.30 figure. The forecast was 55.8; therefore the result had a negative impact on stocks and the Forex market. Despite that fact, the indices managed to avoid a major sell-off as the Chicago Purchasing Managers Index, which determines the health of the manufacturing sector in the Chicago region, jumped higher than expected while the housing sector showed further signs of slowing contraction.

From a technical point of view the S&P 500 continues to trade above its critical support level of 877.86, but is still failing to break its prior high of 956.23. Now stuck in range, investors will be looking for the next trigger to spark an additional rally. When observing the chart more closely one can see that a possible Head & Shoulders pattern could be brewing. If the markets receive further negative data, recent support could be tested once again.

A False Break on the Pound

On the Forex market the Dollar index continued to trade around recent levels, regaining its strength after a three day loss. An increase in volatility was felt during yesterday’s session as the EUR/USD swung from side to side, while the GBP/USD presented a false break.

Germany also had a mild impact on the market, releasing its unemployment rate during morning hours. The Euro-zone’s largest economy showed that their unemployment problems could be improving, releasing a 31k result, compared to an expected 44k. Even though the data had an immediate impact on the EUR/USD, sending it higher, the major could hold on to its gains, losing its steam throughout the session, as the negative U.S stock session sent investors back into the Dollar.

The GBP/USD also presented a volatile session as the revised GDP and the business investment figures both showed negative results. The U.K showed that it had shrunk by 2.4%, while the Business Investment dropped by -7.6%. After climbing and presenting a break out at start of the session the Pound reversed sharply heading back into range.  Yesterday’s session was characterized by a false break, which ended dramatically lower. For confirmation of a true break one should wait for a close above critical levels.

Are you prepared?

Looking forward, today and tomorrow’s sessions should present increasing volatility due the upcoming events.  Apart from the ADP nonfarm employment change and the ISM manufacturing index, both scheduled to be released during U.S hours today, a closely watched interest rate decision and employment data will take center stage tomorrow.  Even though the ECB is expected to maintain its current rate of 1%, investors will be focusing on the statement that accompanies the decision, hoping to receive a clearer outlook. Furthermore the U.S will release its major market mover, currently expected to show an increasing unemployment rate and further job losses.

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