6/6/2012 - The current market sentiment

[walid]

With EU CPI easing yearly in April to 2.6% from 2.7% and with this current economic slowdown in EU, it is widely expected today to have new actions from the ECB to stimulate the European economy which dampened from another side by the worries about the Spanish banking sector and the unclear political situation in Greece which has triggered alarms in the markets weakening the investors' risk appetite as this can lead to Greece's departure out of the EU which can lead by its turn to more worries about highly indebted countries in the Euro zone comparing to their GDP such as Ireland, Portugal and Spain.
The ECB can find that it is inevitable again to start another LTROs round or cutting the interest rate as a monetary option specially with the difficulties that can face the financial solution with current growing social direction inside the Euro zone which is well known of fighting the austerities measure like this which brought Hollande as a new leader of France and this direction can encourage other countries to do the same laying on the need of stimulating the economy meanwhile by the governmental spending and tax cuts which are against the efforts of stabilizing the budgets of ailing countries of debt.
The recent ECB's unstandard LTROs 2 rounds by giving loans passed a trillion of Euros for 3 years with just 1% yearly interest rate looked to the market essential for reviving the banking sector with its easy collateral rules which could open the door for the small banks too to get use of them but until now their effects of the economic performance has not been materialized yet to show how much the economy is suffering from stagnant stance in serious need of stimulation.
The ECB president looked worried after the last meeting about the labor market in EU which carries the negative impact of debt crisis and the negative impact of the governmental efforts for getting over it by cutting its spending and hiking the taxes with rising of March EU unemployment to 10.9% and we have seen lately that EU unemployment rate has rose to 11% in April and March rate has been revised to 11%.
That's beside May EU manufacturing PMI coming at 45.1 from 45.9 in April and yesterday release of May EU services PMI which came at 46.7 from 46.9 in April and also the retails sales in EU of April which dropped by 1% monthly and they were expected to come down by just 0.1% after rising by 0.3% in March and even in Germany, we have seen recently that IFO business climate of May has come significantly down to 106.9 from 109.9 in April and it was expected to ease back to 109.6 only showing massive falling of the investors' confidence with the current negative impacts of the debt crisis and the global economic slowdown.
God willing, the single currency can meet now resisting level at 1.2540 whereas it failed to continue its rebound yesterday after disappointing retails sales figures and in the case of getting over 1.254 there are other resisting levels at 1.2757, 1.2867, 1.3063, 1.3180 and this can be followed by 1.3281 which its breaking can open the way to 1.3384 again before 1.3489 whereas it has formed its recent top and in the case of breaking 1.3489 the pair can meet other resisting levels at 1.3546, 1.3613, 1.3808 before 1.387 which has not been broken since the end of last October and after several tries to break it in last November while its way for falling again can be met with supporting levels at 1.2408, 1.2357 before 1.2286 which could hold by the end of last week and the breaking of it can lead again to 1.2151 which its breaking can open the way for 1.1876 again whereas the pair has rebounded forming its bottom on 7th of June 2010 which drove the pair later to reach 1.4939 on 4th of May 2011 whereas the pair has managed to ease back again.

Kind Regards
FX Market Strategist
Walid Salah El Din
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