Market Analysis Forex - 04 january 2012

European indices extended this week's rally as the DAX rose 1.50% following a better than expected German employment report. Other big gainers included the SMI (up 1.93%), the OMX (up 1.94%), and the Italian MIB (up 1.24%). The FTSE rose 2.29% yesterday in the first trading session of 2012 as the UK Manufacturing PMI came in at better than expected at 49.60 versus 47.70 prior. UK Gilts (10-year bond) are back above 2% yields after falling below towards the end of 2011 on concerns of a global slowdown which sparked risk aversion. The Pound and Euro started today's session slightly lower, pulling back after yesterday's rallies with the GBPUSD quoting at 1.5642 and EURUSD trading at 1.3036.
Asian markets carried over the strength from yesterday with the Nikkei up 1.37% and the Taiwanese Topix rising 2.06%. The Hang Seng was weaker, losing -0.29%, as Chinese Premier Wen Jiabao sees difficulty ahead with weakening exports and inflation running higher than desired. Economists are forecasting a possible bank reserve ratio cut in order to stimulate growth and lending while expanding internal demand. The market's initial reaction was a reversal in copper which had been exceedingly strong the last few days, falling 1.22%. AUDUSD is also ticking lower, quoting at 1.0345 or a change of -0.3189% as decreased commodities demand highlights Australia's reliance on raw materials exports.
The first U.S. market open of 2012 was positive as major indices moved higher and the S&P 500 rose1.55% to a 2-month high. The ISM Manufacturing Index came in better than expected at 53.90 versus 52.70 prior, demonstrating an increasing pace of manufacturing recovery. The dollar has been weaker the last few sessions but has reversed slightly in the overnight session as equities and commodities pullback from yesterday's highs. Treasuries have also fallen as reduced safe-haven demand increased yields. Oil increased 4.2% in trading yesterday before pulling back -0.32% as the U.S. and Iran traded barbs and raising the prospect of a regional conflict. Crude for February delivery traded as high as$102.96 before pulling back to $102.64.

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