European markets raced into the blue in early morning trading, as serious dents were made into December losses following the US markets' euphoria last night. However 24 hours can be a long time, and in the cold light of day this morning US traders have been a little more circumspect with their valuations. The cloud of uncertainty that was the Federal Open Market Committee’s tapering strategy has now been partially lifted and traders have been surveying the demystified landscape.
UK markets move higher
This morning Europe was in full agreement; not, unfortunately, on some tricky European-wide policy agreement, but that they would follow the example set by US traders following last night’s FOMC statement and move the markets higher. Forming opinions on market sentiment at the time of year when volumes naturally drift can be tricky, however it will be interesting to see if indices around the EU are able to maintain momentum. The impression prior to last night’s events was that these indices were as dependent, if not more so, to the quantitative easing process than their US counterparts.
Buy-on-dip to return?
After the enthusiastic reaction of the US markets following last night’s FOMC statement, it is possibly no surprise that having a night to reflect on the implications has seen a more measured response in the early trading session. The current levels of these indices mean that the possibility of a Christmas rally will be a more closely-run thing on the far side of the Atlantic.
Further improvements in economic data will be needed in order to trigger the next reduction of the debt-buying scheme. Judging by last night’s market reaction, this would be received as further confirmation that the US is heading back to the good old days rather than as something to be feared. Now that the uncertainty of the 'will they, won’t they' debate is out of the way, and the support of the longer-term interest rate forward guidance has been given, we could be set to see the re-emergence of the buy-on-dip traders.
Gold and copper test followers
As with so many sectors, last night’s FOMC statement has been a catalyst, and in the morning session gold once again tested the bulls' commitment by fleetingly heading below $1200.
Although having benefited from several weeks’ worth of rally, it looks like copper could be another metal about to test the commitment of its followers.
USD/JPY at five-year high
Now that USD/JPY is trading with a Y104 handle it looks set to close up for an eighth straight week, and is currently trading at five-year highs. After last night’s squeeze GBP/USD has settled down somewhat, and is now hovering just below the 1.6400 level. In contrast EUR/USD has seen its six-week rally abruptly halted as it has fallen below 1.3700.