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The Week Ahead

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Life without a stimulus

Mon, Nov 16 2009, 10:52 GMT
by Przemysław Kwiecień

X-Trade Brokers, XTB

How much of the real recovery? That question has been resounding in mouths of economists and investors alike for a long while. Pessimist pointed numerous times at the governments as “culprits” when it comes to solid economic numbers. What will happen when its gone?

Well, a grain of truth will be revealed this week with first US figures influenced by diminishing lifeline from the government. Car sales incentives - an indirect support for carmakers expired and tax credits for home sales are on the way out. That will be reflected in retail sales and housing starts released today and on Wednesday respectively. The week will be completed with output numbers (Tuesday), consumer inflation (Wednesday), UK’s retail sales (Thursday), Bank of Japan’s meeting (Friday) and some speeches made by central bankers (including Bernanke’s speech today).

Will that be enough to clarify the market situation? Last week we underlined the importance of the 1100 points barrier on the S&P500 and the 1,5063 (this year’s high) on the EURUSD. Indeed last week brought about a test of both levels and in both cases the bulls failed. The selling side revived as soon as the market was getting close to those crucial levels. Why are these levels so important? First, the market wasn’t higher this year. Second, the market bounced back after a correction. If the bulls are too weak to move higher, a double-top formation will be pictured on both markets, threatening a deeper correction. Thirdly, the market was looking for an excuse to reverse some of impressive gains from previous months but haven’t found any convincing. Finally, those two markets alone can dictate the sentiment for all remaining financial markets in the world. While at the end of the day the fundamentals will be decisive, before that happens market pays attention to the spells of technical analysis.

Published on  Mon, Nov 16 2009, 10:52 GMT