Despite the lower than expected non-farm payroll release which has just 103k while the market was waiting for 135k to be added in December, the greenback was well-supported by the rising of its bonds yields which have started to trigger the treasury and the Fed worries recently as the economy seems in better shape now and there is a limited probability of adding new funds from the Fed with the current improving of the economic data while the budget deficit is still going larger and the call of raising the taxes are increasing even from the former Fed's Chairman Mr. Alan Greenspan.
The confidence in the greenback has been in ascending recently by better than expected data reflect bullish economic growth outlook in US and better demand for the US dollar borrowing underpinning the US bonds yields helping the equities markets and the business spending driving the gold prices down as we have seen recently December ADP Employment adding triple of the market expectations of just 100k at 297k added jobs from 93k in November and Nov US factory orders data have shown increasing by .7% while the market was waiting for decreasing by .4% after falling in October by .7% and also both of US December manufacturing index and non-manufacturing index getting better to 57 and 57.1 consecutively after US December Chicago PMI had come at 68.6 while it was waited to be 61.5 from 62.5 in November which are the best since the ending of the credit crisis.
The market sees now that the US economy is much more credible driving the greenback up across the broad even versus the commodities and the energy which fuel this better growth outlook asking for the greenback weighing negatively on the Aussi which came back to parity with the US dollar driving the gold down with better business sentiment getting out the money from the safe haven stance pushing it to test its next supporting level at 1360$ which can be followed by 1329$ and 1315$ with investors rising confidence in the greenback which has been boosted from another side this week by the announcement of the Fed's recent meeting minutes which have shown easing of the Fed's fear about deflation and appreciation of the yield rising with rising confidence in the US recovery which can increase the borrowing and the prices too easing back the growth downward pressure which helped the greenback to get off its low at .93 versus the Swiss Franc which always takes use of the market tendency for taking a safe haven stance with the worries about growth but with the current better growth potential in US the greenback could get enough strength to get back above .96 putting more pressure on the EURUSD which failed several times to get supported place above 1.34 passing to 1.35 resistance and the upper band of the pair side way in the recent few weeks to fall breaking 1.297 whereas the pair has formed a lower band of this side way formerly by the ECB announcement of underpinning the liquidities in the bonds market with successful Spain and Portuguese auctions but it is now looking heading back down after this breaking of 1.297 which can open the door for the next major supporting level at 1.2586 with the market focusing on the debt contagion inside the Euro zone despite the recent good performance of the European stock following the growth recovery optimism in US and better economic data like December EU PMI manufacturing index which rose above US to 57.1 and the recent continuous improving of the market risk appetite which came by the greenback side this time as the market is still worried about the debt contagion inside the Euro zone gloomy by the Estonia recent adoption at this time focusing on the downgrading probabilities of the credit rating of the Euro zone ailing countries of debt which have fallen recently on these countries with negative outlook of their debts as we have seen recently Portugal which has been downgraded by Fitch one notch to A+ with a negative outlook following Ireland which has been downgraded five notches to B
with a negative outlook from Aa2 by Moody's which has announced that it can downgrade the Spanish long term credit rating of Aa1 too.
While the lower than expected figure of non-farm payroll of December was hitting the greenback, it could help the cable to have a floor at 1.54 rising back above 1.55 after falling under the pressure of rising of Q4 2010 mortgage defaults value for the first time since Q2 2009 and sudden falling of December services PMI below 50 at 49.7 in the contracting territory to temper the positive sentiment towards the UK economy and the British pound which has been triggered by December manufacturing PMI rising to 58.3 while the market was waiting for the same reading of November at 57.5 which brought back some confidence in the UK economy reducing some of the market discounting of adding more funds to its buying bonds plan getting off some of the pressure on the British.
God Willing, it is important to wait this week for November US trade balance to be -40.6b $ after we had seen significant tightening of the trade deficit in October reaching 38.7b$ from 44.6b$ in September while the market was waiting for 44.8b$ on the current US easing policy which weakened the USD lowering the costs of exporting and the imports specially from china which is worrying about the inflation outlook taking a tightening monetary stance by raising interest rate .25% twice in less than 3 months requesting from its banks to increase their reserve requirements 6 times last year for curbing this inflation upside risks which was at a 28-month high at 5.1% in November while it is still looking benign in US as we have seen November US CPI coming at .1% monthly while it was foreseen to be .2% and the core figure excluding the food and energy rising by just .1% as expected after 2 months of flat reading and we wait by the end of this week for December CPI figures which are expected to show rising of the broad rate by .4% while the core excluding the food and energy is expected to be up by .1% again and we also wait next Friday for January preliminary reading of University of Michigan monthly consumer sentiment index to be 75.5 after getting up to 74.2 in mid December from 71.6 at the end of November while it was forecasted to be 73.
Kind Regards
FX Consultant
Walid Salah El Din
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