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23/2/2010 - The current market sentiment

Discussion in 'Current Market Sentiments' started by fx-recommends, Feb 23, 2010.

  1. fx-recommends

    fx-recommends Content Contributor

    Aug 6, 2008
    Likes Received:
    The Greenback is still finding support from the market anticipation of a stronger language from Ben Bernenke this week in his 2 days testimony in front of the house later this week After last week Fed's surprising decision of hiking the discount rate by .25% expressing this action which can increase the market speculation of another tightening actions to come which can underpin the greenback further. The Fed usually takes the discount rate decisions separately from its scheduled meeting in the critical times and it looks that the fed sees that the current economic conditions are not in need of keeping the discount rate unchanged at this very low level without any tightening action until now despite the Fed's Members trying to calm down the market after this decision repeating their mantra that the inflation pressure is still will contained and the economy is still not strong enough and in need of the current extraordinary low stimulus interest rates.

    After the market had been possessed by the rescue plans and the liquidity in the recent 2 years it's now focusing on the cost of these rescue plans which is accumulating in the countries debts and we have seen last week UK posting its first net borrowing deficit moth since the beginning of 1993 which can bring its budget deficit ratio to GDP above 12% as the public sector has borrowed in Jan 4.3 B Stg while the market was waiting for covering 2.8 B Stg of this debt which affected negative on the British pound which looked in a better market appreciation of its situation and having trust in its gilts market than the other EU member which suffering consolidation in its debt despite shrinking by 4.7% in 2009 and growing by just.1% in the last quarter and from the other side of the Atlantic Obama is trying to impose taxes on the banks which had the rescue plans funds and the governmental underpinning in the crisis which is looking easing in US than Europe which is still suffering from its low levels of growth until now which put pressure on the single currency and the British pound versus the greenback in the recent months.

    The current market sentiment is still unable to get rid off the Greek debt and the worries about the other European countries sovereigns debt effecting negatively on the single currency which is trying hardly to stand again above 1.36 versus the greenback pushed up by increasing the investors' risk appetite last week sparked by strong earning reports from Barclays but the worries about the ability of Greek to sustain its debt at the current low levels of growth in the Euro zone has brought back bringing back to the market. The required deficit to the growth ratio is below 3% while it's now above 12% in Greece which is not looking coming soon at the current struggling growth rates which resulted from the credit crisis as even the ECB could not stop any of its accommodative easing actions worrying about the current nascent recovery until now which can put more pressure on the reforming plans in Greece from another side as the forex market has got that there is no bailing out plans currently from the other EU member after the EU summit last Thursday and the EU Finanacial ministers meeting in the beginning of last week but just the political underpinning waiting for signs from Greece at least in the coming 30 days that there are effective efforts from its side can sustain its debt position but the most worrying thing is still that this same problem is threating other EU members like Spain and Portugal with no clear mechanism to the market for solving such economic situation in the case of exacerbation inside the Euro zone which can effect negatively on the single currency securities holding underpinning the risk aversion sentiment and the greenback from another side with these problems persisting.
    The single currency could close hardly last week above 1.36 last Friday after making a new lower low at 1.3445 which has been the formed bottom of last May as we have mentioned earlier in the recent report which can put further technical pressure on it even with last Friday strong containing closing above 1.36. Now the next support is still at 1.3445 followed by emerging support at 1.29 whereas the pair higher low of its rally reaching 1.513 in the beginning of last December while the next main resistance is still at 1.384 followed by 1.40 psychological level.

    Best wishes

    FX Consultant
    Walid Salah El Din
    E-Mail: mail@fx-recommends.com

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