The optimism could continue containing the current market sentiment after the Japanese promises of buying European bonds this month by a successful Portuguese auction driving the single currency up above 1.31 after it has started the week under the pressure of rumors about European efforts to convince Portugal to join the bailing out package following Ireland to reach 1.2873 versus the greenback but the Portuguese denying of the need for this made package by European countries and the IMF could help the single currency to rebound underpinned by new Japanese pledges of buying European bonds following china which has done the same to restore market confidence in the European debt markets driving the market risk appetite up amid increased market expectations of better US earning reports to come showing improving in the fourth quarter of last year which weighed negatively on the low costing funding currency like the Japanese yen and the greenback across the broad but versus the Aussi which is still under the pressure of the floods in Queensland which is the third biggest Australian cities while the British pound could add more gains reaching 1.578 fueled by this returning back of the market cheeriness but it is still below key resisting area from 1.58 to 1.5907 whereas the cable failed to pass recently forming its recent top where it has fallen to 1.534 before finding support and strength to rebound by lower than expected figure of non-farm payroll of December has hit the greenback by the end of last week after it has been under pressure because of Q4 2010 mortgage defaults value which rose for the first time since Q2 2009 and the sudden slump 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 has brought back some lost confidence in the UK economy reducing some of the market discounting of adding more funds to the BOE buying bonds plan which is expected to be kept unchanged today with the coming MPC meeting keeping the interest rate unchanged at .5%. The MPC recent minutes have shown that there was opposing from Andrew Sentence who preferred hiking the interest rate by 25 basis points as the leader of the inflation worried members while from the other side there was Adam Posen came again suggesting adding new 50B Stg to the current 200b Stg buying bonds plan but he was also the sole voter for this adding while the other preferred keeping everything as it is elevating their appreciation of the EU debt risks on the British economy and the increasing of the commodities and energy prices on the inflation outlook in UK.
God Willing, We will be waiting today 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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