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It is hardly surprising that the FTSE is seeing a corrective pull-back following two weeks of gains where the index added 7.4% or 450 points. The lesser-spotted buy-on-the-dip traders have re-emerged following a month-long absence.
As much as there might be a rising sense of confidence with equity traders, there is still the larger question of how sustainable these levels and the ability to go higher are for an asset class that has become so used to the support of the US’s quantitative easing policy. Looking at the charts, the FTSE has managed to get itself back above the 50-, 100- and 200-day moving averages.
Over the next couple of weeks the European markets could well find sentiment being guided by the ongoing US reporting season. The first week is always a little quiet, but such a raft of major firms across all sectors reporting next week will give a very strong feel for how the US economy is behaving, behind the official economic data releases. This is not information that is officially being measured by the Federal Reserve in terms of quantitative easing, but it is undoubtedly something that they will be monitoring.