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3/2/2014 - The Current Market Sentiment

Discussion in 'Current Market Sentiments' started by fx-recommends, Feb 3, 2014.

  1. fx-recommends

    fx-recommends Content Contributor

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    The Forex market attention this week is expected to be shifted step by step from the movements of the Emerging economies currencies to be paid to the US labor market after the recent data has growing of the US economy by 1.9% last year as the fourth quarter GDP preliminary figure has shown expansion by 3.2% in an annualized way following growth by 4.1% in the third quarter from growth by only 0.4% in the fourth quarter of 2012.
    As the market will be waiting by the end of the week for the release of US labor report of January which is expected to show adding 185k out of the farming sector and stable unemployment rate at 6.7% as it was in December after mixed release of December has shown drop of it from 7% in November and adding only 74k of jobs out of the farming sector.
    The Fed has shown in his recent assessment last month after cutting its monthly scale of buying again by $10b that it sees the labor market getting better despite the recent mixed data about its performance.
    The Fed by this action has given the markets several messages like its durability to follow a pace of incremental gradual QE tapering to return back to normal interest rate based strategies.
    By this action also, the market volatility can get down with higher certainty of adopting this unannounced concluded direction of the Fed which looked also unfazed to mention the Fed’s QE tapering impact on the emerging economies currencies.
    The currencies markets will have to pay attention also to the ECB meeting after EU HICP got back to 0.7% y/y in its preliminary reading of January to be the fourth month in row below the half of the ECB yearly target which is at 2%.
    The ECB has managed to reduce the refinancing interest rate of the single currency to be 0.25% from 0.5% in the meeting of last November when it had this same rate about October and told the market that it is opened to any other needed action for stimulating the economy and Concerning the inflation, it has mentioned that the inflation risks can continue to be to the down side over the medium term because of the low economic activity but it is to turn back gradually to be close but below its yearly target.
    Another easing action by the ECB this week is not ruled out but the situation currently looks little different from the stance in November as ECB has not signaled in its following meetings to November that it is about to take a similar easing action soon and it has prepared the markets too to receive such data which express about low inflation rate in EU by saying that the inflation low rate can be extended to not expect quick reactions from ECB for propping it up and that helped the single currency to rise again to the current level after massive falling to 1.3292 following its decision to cut the interest rate on the 7th of last November sending its forward guidance of keeping its accumulative easing stance however it has avoided to identify the nature of its next easing step, if it is needed.
    But is it to be by another cutting of the interest rate and if it is so, can the ECB drive the deposit rate down also to be below zero as it has mentioned several times by its president draghi that it is ready technically to take this step?
    Or it is to be by another round of LTRO with different easier conditions as the ECB governing council member Ewald Nowtony has figured out previously in his talking at CNBC as his favorite option to stimulate the economy as LTRO3 can help also the EU banking sector and bring more stability back it and offer better crediting conditions.
    Anyway the main market fear about the EU economy is that to be in an early stage of facing deflation cycle can persist taking it into recession like what has happened in Japan and persisted in the past 15 years and lead it to adopt last year ultra easing policy for targeting 2% inflation rate yearly which caused massive falling of the Japanese yen value by 18% versus the greenback.
    The single currency appreciation can be also criticized at this current stage by the ECB members as it is not welcomed to them with the current prices easing and the need for higher EU exporting activity. So, The ECB member Christian Noyer came last week to follow Nowtony stance saying that it is clear now that the high single currency exchange rates hurt the EU exports and such comments can be repeated weighing on the single currency by God’s will.
    The single currency has started the week trading versus the greenback below 1.35 undermined by easing of the pricing power more than expected last month to be traded below its 200 h4 moving average and God willing in the case of retreating further it can face supporting level at 1.3397 before its recent formed bottom at 1.3294 which has been reached on the 7th of last November while the expected standing supporting levels below it are still existing at 1.3229, 1.3104 before 1.30 psychological level while going up again from here can be met by resisting level at 1.3739 again which can be followed by 1.3818 before its recent high at 1.3893 which has been reached on the 27th of last December following gaining upside momentum after breaking its previous resistance which stood at the 61.8% Fibonacci correction level of the falling from 1.4938 to 1.2042 at 1.3834 which could hold the pair back last October.

    Kind Regards

    FX Market Strategist
    Walid Salah El Din
    Mob: +20 12 2465 9143
    E-Mail: mail@fx-recommends.com
    http://www.fx-recommends.com
     
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