As what has been expected and mentioned in yesterday report, after the anticipated decision of the ECB of keeping the interest rate unchanged at 0.5%, it has given a reference to the recent rising of the bonds yields in EU as it goes against its efforts of stimulating the economy which is looking for a path for even a gradual recovery to get out of the current persisting recession as we have seen yesterday too with the release of EU Q1 GDP final reading which has shown shrinking by 0.3% q/q from 0.2% in the recent reading and after shrinking by 0.6% in the last quarter of 2012.
The ECB has given the market a clear forward guidance that it is to keep the interest rate at its current level as long as it is possible if it is not to me cut again considering the option of driving the deposit rate below zero as a possibility it is able to do technically currently. This guidance was enough to push forward the European major stocks indexes with the US markets off yesterday helping DAX 30 to get over 8000 psychological level by the European session end before closing below it with tendency to get risky positions out of holding the European bonds which become less attractive generally after these comments.
The main point today that the ECB wanted to direct a message to the markets that it is not in a place to follow the Fed in its way which it has mentioned that it is about to go through of cutting its stimulating ample of liquidity it pumps monthly if the economic indicators are to come in line with its expectation showing increased momentum of improvements especially next year and falling of the unemployment rate by God’s will while the ECB is still facing down side risks capping its GDP from recording a quarterly expansion since the third quarter of 2011 when it has grown by only 0.2%.
The single currency is trading now around 1.29 versus the greenback after this reference while the forex market is waiting for the release of US Labor report of June which expected to show rising of the US non-farm payroll by 165k from 175k in May and decreasing of the unemployment rate to 7.5% from 7.6% in May after US ADP employment change of June came this week showing adding 188k Jobs while it was expected to add 160k from 134k in May.
By God's will, EURUSD can face now in the case of falling further supporting level at 1.2734 before 1.2661 again whereas it could rebound after the market worries about Greece got down last November while these worries can ascend again with the creditors troika representatives are existing now in Greece looking for more austerities measures to be implemented while the Greek street is still unrested and breaking below 1.2661 can open the way for another supporting level at 1.2464 while getting back up from here can be met by psychological resistance at 1.30 which can be followed by resisting levels at 1.3031, 1.3102, 1.3150, 1.3253, 1.3305, 1.3433, 1.3519, 1.3598 before 1.3709 which has been reached in the beginning of last February after US non-farm payrolls of Jan which has shown adding 157k jobs has been revised down later to 119k after avoiding of the fiscal cliff in the beginning of this year supporting the risk appetite in a remarked way weighed down on the greenback.
Kind Regards
FX Market Strategist
Walid Salah El Din
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