The major currencies all rallied on market open against the dollar on Sunday; as China start to de-peg their currency from the dollar and start to manage the Yuan with reference to a  basket of currencies. This will hopefully allow more flexibility and in time be sufficient enough to rebalance the world economy, however the timing of this falls too close to the G20 summit and is purely a smoke screen before the talks.

The emergency budget on Tuesday by George Osborne got a positive market response from traders,  the realisation that something has to be done, and done now, has put some confidence back into the market.  Perhaps the most beneficial  during this World Cup period being the cut in cider tax and a hold on beer. These are short term, positive signals and we have to be realistic that hard times are ahead. Look, therefore, for shorting opportunities.

The Euro rallied as with other currencies at the beginning of the week but has faded out towards the end. The build up to the G20 summit saw Merkel defending austerity measures as US and UK politicians question whether Germany is doing enough to stimulate economic growth in the Eurozone. Germany is looking to announce plans for €80b in budget cuts in the next 4 years. The French, pushing the economic problems facing the Euro aside, are having a full and public enquiry into their national football team’s disgraceful performance in the World Cup. Well Sarkozy, as long as you give those overpaid, arrogant peacocks a good talking to then everything else will just fall into place. Where do they all live? London! Euro a great sell level on the chart.

Gold had a very range bound week trading 1230.0 to 1243.0 levels. There was a dip to 1226.0 which provided some good buying incentive. The indicators on the chart are picking these levels as pullbacks from reaching new highs. I would look for 1280.0 as the next new high with a potential pullback to 1250.0 level. Gold moved $25 at the beginning of the week as upward momentum faded. The long gold strategy will be continually used for the foreseeable future as financial regulation and the increase of it, is one of the main topics for western economies.

About Author:

Andrew Johnston is Senior Institutional Trader with One Financial Markets; a former analyst with Goldman Sachs and more than ten years successful trading experience, Andrew is currently Head of One Financial Markets institutional desk.

Sterling rallied at the beginning of the week in conjunction with the FTSE rallying from the 5000 level. The Office for Budget Responsibility (OBR) forecasted that the economy will expand by 2.6% in 2011 down from the 3% to 3.5% estimated in the Labour March Budget. However, direct debts and defects were £8m lower at £163b. The big story came from the Mansion House dinner on Wednesday where Mr Osborne declared that the FSA would be abolished and that the Bank of England (BoE) would take over with sweeping powers under a new regime. What will actually happen is the FSA will get a name and management change and will look to implement changes. This is a great start from the Chancellor; you place the blame for the whole financial debacle at the feet of the regulators and then sack them. Brilliant strategy George!  We have broken through the 33% retracement from the sell off at the beginning of the month and as I said in the previous diary small bullish momentum but it is starting to fade.

The Euro; well, all I can say is DEAD CAT BOUNCE. This is all that has happened here, traders have seen a little bit of value as the three blind mice, Merkel, Sarkozy and Trichet keep their mouths shut for another week. What we have heard this week is the predictable downgrade of Greece to junk bond status, that Spain’s debt cost has risen and that the P and S from the PIGS are producing austerity plans for fiscal tightening .That’s good of them!

I don’t want to sound biased against the Euro but I look at the Eurozone as a trade, I am looking for upside and profit so I analyse the components that will make me do this.  Germany is the only component I would be long. The rest of Europe I would be short, and very happily short France.

The french president Sarkozy has tried to kick start his economy by increasing the retirment age to 62 and making €42b in cuts. The second French revolution might be on the cards. I unfortunately can’t trust a man who makes swim short shopping a priority before fiscal policy, I believe De Gaulle did the same thing in 1939 and look who came in the back door.

The 33.3% retracement has been broken and for the most bullish technicians this is where they re-enter the market thinking the trend resumes from here. I would be very cautious over this play.

Gold still remains very quiet and like the tiger in wait will leap out when you least expect it.

I look to gold to dicate all economic sentiment at the moment and its slow but steady up move to its all time highs just echos a big push. The cyclical trading of Gold makes it slightly low on volumes during these periods normally, however, i see longs slowly accumulating here and any smell of bad news would look to break the highs and push on.

About Author:

Andrew Johnston is Senior Institutional Trader with One Financial Markets; a former analyst with Goldman Sachs and more than ten years successful trading experience, Andrew is currently Head of One Financial Markets institutional desk.

The UK rate decision did not surprise many traders at it was kept on hold at 0.5%. The impending small rally confirming a short term positive consensus from the markets . The BP debacle has taken over the headlines as we start to slog it out with the States. This is merely a smoke screen to deviate investors from the real financial problems which both the UK and US governments have. The confidence in the market is still not there even though the FTSE trades above the 5000 level. I would look at shorting opportunities and long term would be looking at the lows of March 2009 as levels to be breached in the forthcoming months.

The ECB kept rates on hold at 1.0% and a united front by Trichet pushed the Euro from the range bound 1.1900 levels to 1.2140. Trichet in the press conference was resolute as always that the board would work together to strengthen the Eurozone.  The trend is downward and I would only look to short the Euro in the long term. The problems they have do not have quick fixes and I don’t think they have even looked at getting to the root of the issues yet. They plug one leak in the boat but forget they have hit an iceberg and it’s time to abandon ship. Women and children first Sarkozy!

Gold had a volatile move up $30 at the beginning of the week from the $1220.0 level as investors looked to get back into the safe haven product .There has been talk of gold pushing to ridiculous levels of $7000 an ounce based on inflation adjusted pricing. I still see it as having good upside potential but we are coming up to the summer months and the reluctance of politicians to be honest might hold the metal back. The spinning top shows indecision in the market and I would look for a pull back to $1180.00 for bulls to get back in.

About Author:

Andrew Johnston is Senior Institutional Trader with One Financial Markets; a former analyst with Goldman Sachs and more than ten years successful trading experience, Andrew is currently Head of One Financial Markets institutional desk.

GBP this week; after the sell off from 1.4700 level last week we have found some common ground and traded 1.4300 – 1.4500 range since Monday. The sterling players got spooked by the honesty of the new coalition government in admitting that stern cuts have to be taken in order to get the country back on track. We are to pay £70billion in interest this year if we don’t start to cut our expenditure and this mean public and government employees’ heads on the chopping board.

The heavy expenditure cuts also bring the idea of an imminent interest cut into the play. I see downside for the GBP in the long term but short term play would be long as the 10 day moving average has crossed the 20 with upward momentum and produces a bullish trade signal.

The Euro broke the 1.2135 support with ease and has found range 1.1888 – 1.1995. If we have a third day of settlement under 1.2000 then we have a bearish indicator and more downside for the Euro. The German and French premiers met today to discuss a continued ban on naked short selling and reform of the financial services; this only compounds the already rotting corpse which is the Euro. The failure to actually do anything or to come up with a plan in order to plug the source of this crisis will keep the negative market sentiment for the foreseeable future.

Gold with a relatively quiet end to the month and a sell off prior to the Non Farm payrolls has resumed its bullish climb to new all time highs. The air of fear in the market projected from the European sovereign debt crisis and its effect on the rest of the world makes the precious metal the ideal safe haven and more and more investors are using it as a major part of their investment portfolios. The fear factor makes Gold shine and will do so until we get a proper hold on the global economy.

About Author:

Andrew Johnston is Senior Institutional Trader with One Financial Markets; a former analyst with Goldman Sachs and more than ten years successful trading experience, Andrew is currently Head of One Financial Markets institutional desk.

The bank holiday Memorial Day shortened the week which has turned out to be an incredibly long and boring one from a fundamental perspective. The range traders and techs should be having a field day with these beautifully ranging markets. Praise be it is Non Farms today and we can kick start some direction in this market. If this is a negative number the sense of a double dip will echo in the market and be evidence that the European disease has infected the bouncing US economy. I think their ball might be burst!

GBP the first to discuss, it tried to break through the 1.4750 resistance on Wednesday but with no joy, I thought a push here would definitely see us at the 1.4800 level however, as I have indicated on the chart we have no confidence in the market at the moment. The complete lack of direction on Europe leads to these aggressive pull backs where traders take P/L and wait for the next piece of directional flow. The UK was boosted by the Pru and AIG deal being terminated and that means £24.5b stays in Blighty but I wonder for how long?

The Euro now, and how quiet has it been from a political front. Angela Merkel, the German Chancellor, in the April edition of the German tabloid Bild was depicted as a “sword bearing reincarnation of the Bismarck”. Well, we all know what happened to the Bismarck, it sunk.

The continued short selling ban is – in anyone’s eyes – a further indication of the extremely fragile situation in Europe and you get the feeling that instead of being sunk it might scuttle itself in order to save the crew. Captain Merkel won’t go down with the Euro ship you can be sure of that.

The 1.2135 level has been great support hitting 3 times and bouncing back but this has constructed a flag continuation pattern and there has been no price breakout so a break to the downside is on the cards. If the Euro is sunk let’s find dry land!

Gold has not done much over the last week and the following summer months are generally quiet ones for the precious metal. The slow gains of $30 over 2 weeks and with no further confirmation from Europe led to the sell off prior to Non Farms. If there is no confirmation on direction take profit and wait for the next opportunity, you won’t go broke booking profits. Gold is solid and will be as long as the World fears a double dip and a retracement in the stock markets.

About Author:

Andrew Johnston is Senior Institutional Trader with One Financial Markets; a former analyst with Goldman Sachs and more than ten years successful trading experience, Andrew is currently Head of One Financial Markets institutional desk.

GBP broke out the 1.4520 zone at the end of the week due to what I would say is nothing more than patriotic buying of sterling. The new UK chancellor, George Osborne, announced his £6 billion worth of cuts and the potential for a rise of CGT for UK economy.  This won’t work!  We are in an economic environment where people are locked in to responsibilities, to say we will stop employing here and reduce recruitment there is pointless. These cut backs are a coalition facade. Sterling had its rally based on Osborne’s stern refusal to back an EU levy on the creation of a fund to pay for the winding down of failed banks. Sterling lovers see this as a resolute two fingers up to the Eurozone and they love nothing more than  a Euro bashing as a reason to buy sterling or rather they buy on the idea Britain is better off than the Euro. The fact is we are not.

The Euro stood its ground this week after hitting the 1.2154 level and bouncing.

The 1.2135 level is heavy support and anything around this is going to bring buying interest; this along with China and EU buying to bolster the Euro adds to the firming of the currency at this level. The DOW depreciation during mid week and Euro rally was pure month end repatriation of funds. This happens when Euro hedge funds have DOW equity components as they sell off their equity longs – which are dollar denominated – and then transfer them into Euros. This happens generally at the month before a quarter end as it gives the balance sheet a healthy outlook going into the end of the next quarter.

Merkel has been told to keep quiet this week after her naked short selling comments spread fear in the markets that more downside momentum was to be released in the eurozone. This halt in the Euro collapse is a mere blip on its downward progression. There is nothing healthy about the Euro and we have two feasible out comes; one the restructuring of the debt issuance system in Europe or, and I am an advocate of this, the slaughter of the PIGS and trimming of dead wood. The Euro has failed, let’s deal with it.

Gold had a slow appreciation this week from the 1180.0 level trading 1215.0 Friday. Gold more now than ever is being used as a hedge against any economic turmoil. Buy stocks, buy gold as a hedge, buy risk, buy gold as a hedge, buy gold, buy some more as a hedge.  1333.0 still upside in this yet.

About Author:

Andrew Johnston is Senior Institutional Trader with One Financial Markets; a former analyst with Goldman Sachs and more than ten years successful trading experience, Andrew is currently Head of One Financial Markets institutional desk.

Markets have been chaotic since Wednesday. The smell of fear and anticipation of further bad news for the Euro has rocked markets worldwide. The start of Euro troubles came as Angela Merkel placed a ban on all naked short selling of eurozone sovereign bonds, CDS and shares in its top 10 financial institutions. This ban will simply scare global investors away from the eurozone altogether. The Euro hit a low of 1.2140 before recovering to a close of 1.2570 on Friday.

The fact is the Euro has simply failed and we have to be careful when Germany will look to leave in order for it to avoid the financial burden of Club Med countries and their ability to service their €3 trillion level of debt.

The dollar had a good start to the week until Thursday when the DOW dropped 300 points on concerns that the Euro bail out would not be enough to stop the domino effect on Italy, Portugal, Spain and Irelands sovereign debt. The Euro had a technical pull back so that’s why we had dollar retracement also.

Gold depreciated due to profit taking and dollar appreciation last week. The precious metal traded down to 1167.2 but technical levels and buying opportunities helped the safe haven product to regain some of it’s losses trading 1185.0 at the close Friday. This product has a new target high of 1330.0 in the coming months due to the uncertainty of the Euro and its ability to keep its members solvent.

About Author:

Andrew Johnston is Senior Institutional Trader with One Financial Markets; a former analyst with Goldman Sachs and more than ten years successful trading experience, Andrew is currently Head of One Financial Markets institutional desk.

The mid week market roundup has to start with George Osborne the new Chancellor. As soon as he gets his high ranking role in the government he is kindly informed by his opposition counterparties that there is nothing left in the vault. That means nothing for public spending. The budget deficit of £163 billion and a monstrous off balance sheet liabilities does not look good for the start of the coalition government. Sterling has taken a whack since our first report last week and has dropped rapidly. It has broken support at 1.4731 with such ease it looks like 1.3850 is not far away and certainly an area for buying interest but don’t get sucked in too early. Hard times ahead for the UK I am sorry to say.

The Euro is another currency still in trouble and it seems there is no light at the end of the tunnel. The ECB is looking to try and inject some confidence into the market by quashing fears its €16.5 billion worth of bond purchases are not going to be inflationary. A combination of offsetting these purchases and offering banks higher rates of interest for their deposits is to bolster its inflation fighting credentials.

Germany, the main contributor to the bail out, is looking to push the idea of tougher fiscal rules based on German law to prevent excessive debt. This seems sensible since it will probably exclude them from asserting quite as much as they have done in the event the rest of the PIGS go unders. They will have to rush though as the apple sauce is on the table and the PIGs are in the pan.

Euro smashed through 1.2526 support, and is in free fall. PIGS might fly but in Europe they definitely don’t.

Gold has been relatively quiet this week. A pullback from its all time high was always on the cards as traders start to take profits. After large aggressive up moves the gold market always has a 6-10% pullback so we would be looking at 1181.00-1168.0 as the next levels to be tested. It is hard to think about a long position in gold at the moment however it is the fundamentals that count. If the economic stability of the world is in doubt traders can always make a quick buck in gold. The question is when will the shine of gold wear off?

About Author:

Andrew Johnston is Senior Institutional Trader with One Financial Markets; a former analyst with Goldman Sachs and more than ten years successful trading experience, Andrew is currently Head of One Financial Markets institutional desk.

The mid week market roundup has to start with the creation of a British coalition government. The electorate went to the polls on Thursday last week and by late Tuesday night we finally had a deal between Conservatives and Liberal democrats. This has not happened since 1974 and they produced some of the darkest days for consumer confidence.

Coalition governments are notoriously hard to manage and if we look at the charts we are entering support territory not seen since the subprime crisis. The fear in the markets are compounded by the potential for Liberal democrats, inexperienced in government and policy making, may take appointments which they cannot understand, Vince Cable is rumoured to be piped for a post in banking something he has no experience off and will bring no confidence from the city.

The Euro another huge mover this week , after riots and murders in Athens European policy makers unveiled a €500 billion stabilisation policy proposal with the IMF adding a further €250 billion. The question has to be asked is this enough and has it come in time. The fears of Portugal , Spain and Italy  defaulting on their soveriegn debt is on everyones lips. Portugal has said to been fundamentally banckrupt since 2008. Germany is essentially propping up the Euro , it’s tax payers and its voters will not be happy about this and the chance of Germany splitting from the Euro is a possibility. The Euro is in trouble and hitting support levels not seen since 2009 gives cause for concern.

Gold has risen 12.33% since the start of the year and does not look like stopping. The precious metal is continuing to be very attractive to investors and this does not look like to change as long as we have Euro troubles, fiscal policy issues and uncertainty in the markets Gold will be the safe haven. The only concern is as ETF’s are bought up like there is no tomorrow by retail and private investors we have to be able to balance Gold in supply with Gold we distribute. There was a rumour that tungsten bars had been mixed up with an allocation of Gold bullion in Hong Kong, rumours like this do not provide confidence for precious metal buyers and the effects could be a heavy sell off. We are looking at support 1100 level for value for money.

About Author:

Andrew Johnston is Senior Institutional Trader with One Financial Markets; a former analyst with Goldman Sachs and more than ten years successful trading experience, Andrew is currently Head of One Financial Markets institutional desk.