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UK stock market commentary (January 22, 2013): Yesterday was pretty much a washout, it's difficult to see much changing today

Yesterday was pretty much a washout after the US went home early to watch half the population freeze themselves to death at the inauguration ceremony. It is difficult to see much changing today either with the most important data being the Business Expectations figure due out of Germany at 10. By the way, this is expected by economists to be much better than last month (up to 12 from 6.9) so there might be room for disappointment.

In the UK David Cameron’s oft delayed and relocated speech on the EU is beginning to take on “we shall fight them on the beaches” proportions. Unfortunately for our rather vacillating premier, Churchill he is not. One of my favourite novels in the past dwelt at one point on politicians and the analysis of speeches. In effect by taking a speech and “eliminating meaningless statements, vague gibberish, useless qualifications – in short all the goo and dribble” you come up with the actual tiny core of the communication. In the case of Mr Cameron’s famously delayed effort I fully expect a summary to come up with a blank sheet of paper. His monumental effort will now take place tomorrow morning and so dealers should be aware that there might be some temporary reaction.

The markets are effectively exactly where they were yesterday morning after a frustrating day of non-movement. It is curious how the absence of one financial centre or another often seems to create paralysis in all the others. The FTSE traded effectively in a 25 point range from 6160-6185 and we are currently near the top of here at around 6180. Aside from the brief ‘fiscal cliff’ debacle at the end of 2012 the FTSE has had an almost unblemished bull run since mid November rallying over 10% from 5600 to the current level. As mentioned yesterday there is little to go on at the current levels with serious resistance another 50 to 60 points higher and minor support around 6135-45 with volume (what there is of it these days) and time support all the way down to 5740/50 as so much of 2011/12 was spent at these levels. What this means is that, barring some appalling piece of news, the market is telling us that a major structural pull back is getting less likely.

The European markets seem to be less sanguine as the recent bull run in virtually all asset classes (except the bund) appears to be running out of steam. No doubt on the periphery there might still be some catching up to do but the longer we go on the closer the next round of crisis funding requirements gets. At the moment there is a lull over the winter months but as elections loom in Italy and Germany we can expect a resurgence of in-fighting.

Currencies seem to be the place to be for excitement with the euro and yen going walkabout at the moment with the euro ‘surging’ to 1.34 recovering from the lows of last year. Although it must be pointed out that the Eur/Usd was up at 1.49 in 2011 and spent quite a while at the start of 2012 at current levels so talk of massive rallies should be taken with a pinch of salt. There is resistance at 1.3400/10 and at 1.3445/55 and support at 1.3325/35 and 1.3300/10.

The yen though is definitely in flux as we try to work out if it’s beginning one of it periodical walkabouts. In early hours today we have already managed a 120 pip range versus the dollar and it seems that nerves are still very twitchy on any kind of rumour or news. The cross versus the dollar has had a 40% range since 2007 outdoing even sterling’s famous collapse of recent years and this has been against a backdrop of virtually zero GDP growth, a drift into huge trade deficits and an appalling debt pile. The rise of the yen has seemed contrary to all common sense in years past and perhaps the rubber band had stretched too far and the ‘snap back’ is in process. As mentioned yesterday pull backs on the recent yen falls have proved very short term and limited in effect and in conversation with our clients we are seeing an increasing wish to sell the yen but ‘only if’ we get a correction allowing them in at a better level. Unfortunately as many readers will know ‘waiting for better levels’ is often done in vain. Support is at current levels of 89.00/05 and then below here at 88.37/45 resistance is at 89.28/35 and at 90.00/15.

Gold remains in a short term buying mood and we are approaching the 1700 level once again. Bulls seem to have control for the moment but clients should be aware that the yellow metal has become a bit flighty in recent months, with falls and rallies appearing out of nowhere and then disappearing as fast as they came. There is solid resistance at current levels up to 1697 and then up at 1705/07. Support is down at 1683/85 and then 1672/74 but it must be said that there are minor support levels all the way down to 1540.