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10/3/2011 - The current market sentiment

Discussion in 'Current Market Sentiments' started by fx-recommends, Mar 9, 2011.

  1. fx-recommends

    fx-recommends Content Contributor

    Aug 6, 2008
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    The markets are waiting today curiously for the MPC meeting decision after the recent meeting minutes have shown that there is growing of the voting for tightening after as Mr. Dale has given his vote to hike the interest rate by .25% like Mr. Martin Weale and Andrew sentence has called for hiking by .5% while Possen was the only vote for increasing the buying bonds plan by another 50b Stg while the other 5 MPC voting members including BOE president Mr. Mervin King preferred leaving the interest rate unchanged keeping BOE 200b Stg buying bonds plan unchanged and this mixed position is reflecting the performance of the sterling which rises when it finds signs of inflation and quickly gets back under pressure with the signs of economic weakness and both directions signs are existing containing the sterling movements capping it from catching up with the single currency rising versus the greenback despite breaking its previous resistance at 1.6296 which could not add momentum to it to get higher versus the greenback as it is still contained in the same time by the signs of growth downside risks which lead recently to a down revision of UK Q4 GDP quarterly from -.5% to -.6% which caps BOE from tightening and the release of February Confederation of British industry survey of the retails sales was the best figuring out of this stagflation case facing the BOE as it has fallen to 6 from 37 in January to ensure the market worries about the growing pace of the demand which is moving the growth up and in the same time the figure of the selling prices inside the retail sales sector has shown strong rising from 43 in January to 73 in February which shows the need of tightening too.
    The pressure came down on the single currency after the release of Feb Germane industrial productions which rose by 1.8% after sudden falling in January by .6%. The pressure increased this week on the single currency after Moody's downgrading of the Greek sovereign debt 3 notches to B1 and it came back again lowering the credit rating of 6 of Greece largest Greek Banks but it has mentioned that the biggest 4 of these 6 have credit rating better than the Greek sovereign debt. The single currency could find support at 1.3860 in testing it back as a support after breaking it last week on last week Trichet's comment that it is strong vigilance warranted to watch the prices which always hint to a close tightening action by the ECB but this week with the attention coming back to the debt problems in the Euro zone and the consequences of entering tightening cycle by the ECB on the struggling European debt ailing countries such as Greece, Ireland and Portugal, the European equities markets came under pressure and the single currency eased back below 1.39 as these waited actions for containing the prices over the medium term have been seen as new obstacles in the way of covering the costs of borrowing inside the European countries ailing of debt as hiking the interest rate will exceed the cost of covering their bonds auctions and in the same time adopting a tightening policy can feed the market with the believing that the ECB is caring much more now about the prices upside risks than funding the debt of the debt ailing countries which can lead to further injection of funds into the markets and banking system which can tackle the ECB efforts for containing the inflation over the medium term after it had resided above its 2% yearly target in the recent period fueled by remarkable increasing of the commodities and energy prices with the tension in the Middle East and specially Libya which is one of the most important and nearest oil and gas suppliers to Europe which takes 9.3% of its needs of oil from it and also gives Italy lonely 35% of its needs of gas and also countries behind of it like Spain, France and Germany and cutting these supplies should raise the cost of energy in Europe which can tackle the growth which has started to show good signs of recovery recently lead by Germany which has had significant declining of its unemployment rate of February to 7.3% from 8.5% in January and new 52k added jobs in that same month from just 18k in January while the market was waiting for another 18k in February and that's beside the continued spectacular improving of the Germane IFO business sentiment index which reached new high again in Feb at 111.2 and this number has not been seen since the beginning of that index in 1969 and also we have seen recently improving of its PMI manufacturing index to in February 62.7 from 60.5 in January a little bit above the market forecasting of 62.6 helping EU PMI to keep its scale of expansion of January at 59 and it is widely known that the number above 50 means expansion and below it means contraction.
    The single currency is now trading just above 1.39 after testing back 1.386 as a support and failing to get over 1.4 can increase the downside pressure and lead to further pressure on 1.386 to be broken on a lower formed high and God willing, with the market focusing on the debt worries, this can lead to 1.37 and this can be accompanied with breaking the trend line support of the ascending channel extended from 1.2876 to 1.3523 and getting lower of it should be met with support at 1.359 whereas the 38.8% retracement of the rising from 1.2876 to 1.4036 and breaking it can be another downward strong sign to 1.35 psychological level and passing below this level can lead to the recent bottoming level at 1.3424 and breaking it can open the way again to 1.3238 then the psychological level at 1.3 versus the greenback which has started to gain recently from the risk aversion sentiment and the investors uncertainty which effect negatively on their business spending amid the rising of commodities energy prices which force the investors to tend to square their risky positions buying the low yielding currencies and the gold as a hedge against inflation and store of their wealth value as a safe haven and this can help its previous resistance at 1394$ and the psychological level at 1400$ which can underpin it technically too to make a higher high than it has made this week at 1444$ to face a new psychological level at 1500$.
    Kind Regards
    FX Market Strategist
    Walid Salah El Din
    E-Mail: mail@fx-recommends.com

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