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After a bit of a blip risk has ended the day pretty much exactly where it started. EURUSD is back above 1.2900 after falling as low as 1.2858 - below key Fibonacci support at 1.2867. The Italian debt auction from this morning is a distant memory as we end the London session and all eyes are on tomorrow - the last trading day of 2011.
Interestingly, we saw a bit of divergence between asset classes today, after a year of risk on/ risk off led by the euro this was a breath of fresh air. After a weak start, stocks bounded higher and managed to avoid a mid-session sell-off unlike the single currency. The Eurostoxx 50, the UKX 100, the Cac and the Dax are all higher by more than 1% today. Italian and Spanish bourses are also higher. Likewise, stocks in the US have had a strong start to their session.
Typically stock markets tend to end the year on a high note, will the same happen in 2011 - we shall have to wait and see.
Stocks and other risk assets turned higher after some better than expected economic data from the US. Pending home sales rose by a large 7.3% in November, higher than the 1.5% expected, while the Chicago Purchasing Managers Index didn't fall as much as expected in December declining a smidge to 62.5 from 62.6 in November. Although initial jobless claims were higher than expected last week at 381k, rising from 364k the month before, they remain close to 3-year lows and are crucially below the 400k mark.
So there is some hope for the world economy as the US ends the year poking its head out of its mid-year slump. However, the question now is will US economic buoyancy be enough to help Europe out of its misery especially as weak peripheral nations try to boost exports, or will it slowly turn lower for another weak performance in summer 2012 like it did mid-way through 2011?
Obviously Europe is centre stage as we end the year. In terms of our ones to watch, a few products look interesting as we head into year-end. EURUSD is once again proving that it's not dead yet. On a short-term basis the break above 1.2920 - the 21-hour sma, opens the way to 1.2950 resistance. Above here could see back to 1.3050 - a cluster of smas. What will it mean to the market if EURUSD ends the year above 1.30? In the short-term that is bullish, but our medium-term outlook is to sell on rallies and for a slow grind lower to the mid 1.20's by the end of Q1.
EURUSD hourly chart
US stocks have massively outperformed their European counterparts this year. As I write, the SPX 500 is actually higher for the year to the tune of 0.7%, measly profits, but profits none the less especially when compared to the Eurostoxx 50, which is down more than 20% YoY. But will this last? From a technical perspective the SPX 500 is looking interesting. It is testing a key resistance level at 1,258 - the 200-day sma and also the 61.8% retracement of the May 1,370 high to the October 1,074 low. However, this could be a double top as it tested this level before in the first week of December. Thus, it may test here and then move lower, completing a pattern that looks like the letter M. Support lies at 1,236 - the 50-day sma.
SPX 500 daily chart
Kathleen Brooks| Research Director UK EMEA | FOREX.com
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