The Single currency is still facing difficulty in getting over 1.32 again after Draghi's press conference which has reflected the sack of confidence in the euro zone economy amid the debt crisis negative impacts on the governmental spending and on the demand for borrowing in the same time with the current inflation upside risks which are resulted from the high energy, commodities prices and the imposed taxes for supporting the EU governmental resources weighing down on the EU labor market which is in a weak stance while the economic pace of growth in US is still struggling.
These elements of missing trust are still capping the EU banking sector from taking full advantage from the ECB's LTROs despite its effectiveness in underpinning the liquidity in this sector avoiding collapse of it in the recent months after 2 rounds of giving loans for 3 years with just 1% yearly interest rate for reviving this sector with easy collateral rules could open the door for the small banks too to get use of them.
These loans which passed 1 trillion euros could give buffering for capital restructuring in this sector but it can be a given chance also for carrying risky assets longer or loading higher riskier assets getting use of the low yielding offered loans by the ECB which can lead to stronger unreliable exposure to toxic assets specially, if the growth pace held on this struggling situation in the face of the ongoing downside risks.
The ECB president looked worried also yesterday 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% showing persisting difficulty facing this sector called him for asking for restructure reforms and spending on the infrastructures for supporting demand in this market.
While the demand in the EU manufacturing sector has managed to fall further in the last month as we have seen also this week April EU manufacturing PMI coming at 45.9 deeper into the contracting territory below 50 from 46 in March from 49 in February and it is important here to mention that this index has not find a place above 50 in the expansion territory since July 2011.
He has avoided talking about the French election and its expected results impacts while it is still seen in the markets that winning of the social candidate can confront imposing further austerity measures making split between France and Germany who are the main policies markers in the Euro zone in the face of the crisis.
But anyway the single currency could have a place to close above 1.31 yesterday as he has not signaled a close interest rate cut or new LTROs or hinting to do as what was discounted to some extent in the markets and God willing in the case of falling further, this pair can meet now support at 1.3056 before the psychological level at 1.30 which can be followed by other supporting levels at 1.2973. 1.2930, 1.2874 before 1.2631 which has been the pair formed bottom on 13th of last January while getting up again can face resistance at 1.3281 whereas it has managed to come down this week and breaking it 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.
God willing, the market attention will be paid today to the release of US labor report of March which is expected to show rising of the US non-farm payrolls by 170K after adding 120k in March with no change of the Unemployment rate which is expected to be steady at 8.2% after April US ADP employment came earlier this week adding just 119k while the market was waiting for 175k from 201k in March.
Kind Regards
FX Market Strategist
Walid Salah El Din
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