7/6/2011 - The Current Market Sentiment

[walid]

The single currency is still getting use of the interest rate outlook differential versus the greenback which has been hit by rising of May unemployment rate to 9.1% from 8.9% in April and also adding just 54k to the US non-farm payroll while the market was waiting for adding 190k and also the figure of April has been revised down to 332k from 241k to maintain the slowing of the US labor market after the release of US ADP unemployment index which has shown rising by just 38k from 175k in April while the market was waiting for adding 175k and these weak figures can delay taking any tightening action by the Fed which always care of the labor market and the housing market which is still looking depressed with the sudden declining of US pending home sales of April by 11.6% after rising in March by 3.5% while the markets were waiting for easing by just 1% which can increase the Fed's worries about the housing sector, while it is holding about 900$ billions of mortgage-backed securities and stopping buying more of these MBS at the end of this month on exit of what's called the Fed's QE2 which has been announced on the third of November 2010 can add more difficulties in the face of this sector recovery making taking a tightening action by the Fed very difficult soon putting more weights on the greenback versus the single currency as the ECB has already taken a tightening step by hiking the interest rate in April by .25% and it's possible to take another tightening action later this year for anchoring the inflation over the medium term again despite easing of its pressure in May to 2.7% yearly as it was in March from 2.8% in April and also in spite of Trichet's getting back saying that the ECB is very closely watching the prices avoiding saying that strong vigilance warranted for watching the prices in the ECB press conferences following May meeting when it has decided to hold the interest rate unchanged at 1.25% dragging the single currency down from its highest rate at 1.4939 versus the greenback which has not been seen since December 2009 as this softer language about the inflation risk has suggested that there is no rate hiking this week but Trichet's language in the press conference following The ECB meeting should be closely watched for any new hints about the interest rate outlook in the Euro area while the markets are pricing now on a gradual pace of tightening smoothing the negative impact of tightening on the growth and in the same time avoiding unwanted stronger rising of the European bonds yields which are already boomed by the worries about the debt crisis specially by the recent increased worries about Greece debt outlook with no reached deal among its parties for taking another package of austerity measures which are required by its European lenders and the IMF for supporting by another 12 billions euros by the end of this month by God's will but in this same time, these required measures are facing strong uprising in Greece's streets and this can expose it to further harder financial times and it can lead to unrests contagion against these actually criticized planned measures for brining down the budget deficits in other European countries bringing back the instabilities to the European debt markets hurting the single currency backed securities again.
God Willing, The single currency next main resistance versus the greenback is now at 1.4939, After 1.45 psychological level and 1.459 which is the lower high below 1.4939 while easing back can meet support at 1.445 then 1.4306 and breaking it can lead to 1.4182, 1.4056.1.4011 then 1.3965 which has been reached last month by the growing worries about Greece debt developments containing the market sentiment.

Kind Regards
FX Market Strategist
Walid Salah El Din
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http://www.fx-recommends.com