TRADERS´ Blogs

The gold price has shot higher today and is close to the key $1,600 resistance level. After falling to an 8-month low it looks like the gold bugs have started to buy up the yellow metal at “bargain” prices around $1,575.

The ECB and BOE both kept monetary policy on hold in March, which has helped to boost the EUR and GBP this afternoon.  Although the majority in the market expected the ECB and BOE to remain on hold, there was a small chance of a rate cut at the ECB and more QE at the BOE, hence the “relief” rallies in the two currencies this afternoon.

The focus this afternoon will likely shift to the US as the market watches with wide-eyed amazement at how far a liquidity fest from the Fed can work magic on the markets. According to the futures market the Dow Jones is likely to break virgin territory today and make an all-time high. Much has already been written about the shaky fundamentals and the fact investors are desperate for yield so I won’t add to the debate. What I will add is that if the Dow does hit a fresh all time high today then it would also be notable because volume would be historically low. When markets made a record high in 1999 volume in the Dow was also at a record high. Volume has drifted lower since the 2009 recovery. Why does this matter? You can look at this in two ways: 1, the market is nervous, and still clinging to the securities with the guaranteed buyers (government debt in the West) or 2, the low volume means that there is room for more people to come on board and keep markets trending higher. Whether or not that happens depends on how safe people feel to move out of cash and into equities, in the current environment the next leg higher for US stocks could be an anxious affair.

There’s a sense that everyone got out of bed the wrong side this morning and European stock markets have opened lower. There is also a risk off tone to the FX markets with the yen clawing back some recent losses and the Aussie and the Kiwi both sharply weaker. EURUSD has failed to stay above the 1.30 handle yet again, reinforcing the bearish bias, while GBPUSD has continued to remain in recovery mode today and is back above the crucial 1.50 mark.

The markets have been fairly mixed today with a tepid attempt since the London open to recover some of the Italian election losses of the past couple of days. Italian stocks and bonds are higher today although they are still weak compared to the pre-election levels. The confusion and concern caused by the lack of an outright victor at the Italian elections earlier this week weighed on Italy’s bond auction earlier today and yields were higher.

The markets’ faith that an economic recovery is taking hold, the Eurozone crisis is behind us and central banks will continue to be a benign liquidity force has been shaken this week. Volatility has risen, stock markets have fallen and the dollar is poised to get its groove back.  However, as we end the week expectations that the Fed will abruptly end QE3 are being scaled back and the focus is shifting back to Europe’s growing list of woes.

It’s been a fairly quiet start to the week as the US is out on a public holiday and the G20 ended up being fairly uneventful. The communique said nothing remotely controversial – Japan was not mentioned by name and although the most powerful nations in the world spent a lot of time talking about currencies, they didn’t say anything that is likely to dramatically alter the FX landscape. However, don’t be fooled, there is a lot going on this week so watch out.

• Currency wars take centre stage  

• Why the pound is a headache for the BOE

There have been plenty of false starts when it comes to calling for a stronger dollar and the dollar index is currently close to its lowest ever levels. Although there have been bouts of strength in the greenback, particularly during periods of financial market stress, the dollar index is currently around the middle of its 5-year range, but could the tides be turning and can the dollar embark on a multi-year, broad-based strengthening?

Mario Draghi, the President of the ECB, said very clearly yesterday that currency intervention is bad, the market should set interest rates and that the ECB doesn’t have the mandate to control the single currency. Yet, since his press conference yesterday afternoon the euro is down by more than 1%.  Can Draghi do for the euro what he has so far been able to do for Spanish and Italian bond yields?