The risk appetite has improved during the Asian session pushing the stocks prices up putting pressure on the greenback after it was little changed from the beginning of the week trading in a tight range across the broad amid expected thin trading in the days ahead before the charismas holidays. The single currency is trying to get back above 1.318 again but failing to get over it can open the way back to 1.306 and then the recent supporting level at 1.297 whereas the pair has met new buying interest recently and passing it can lead to 1.26 as the main bottom of its previous ascending rally which has ended at 1.4281 versus the greenback which is still finding support from the recent Fed's decision to keep its purchasing assets plan unchanged changing just the pace of it as the economy needs referring to the weak growing pace which can not support the labor or give stability to the housing market sufficiently as required which can underpin the downward of prices from another side which can help the Fed to keep the interest rate unchanged building on its quantitive easing policy to stimulate the economic growth unfazed of the potential inflation risks but Mr. Hoening the Fed's governor of Kansas who repeated his opposing of this decision appreciating the inflation upside risks over the long term. the market was pricing on a probability of having or referring to a new added funds to this buying assets program of the fed after disappointing release of November US labor report which has shown rising of the unemployment rate to 9.8% from 9.6% in October and lower than the market expectations non-farm payroll added just 39k while the market was waiting for about 150k but the Fed's decision came with no new added funds last week which triggered selling of the treasuries and rising of its yields driving up the cost of borrowing in US despite the Fed's injected funds into the debt market which should lower returns but the market is still expecting further easing steps from the Fed and longer period of keeping the tax cuts in US which can widen the US budget deficit hiking the treasuries yields increasing the need of selling these held treasuries notes while the greenback seems well-supported getting benefits from the rising of the notes benchmarks which can drive up the cost of borrowing generally and the demand for the greenback especially after better than expected data from US recently like December Philadelphia Fed Manufacturing Survey rising to 24.3 while it was waited to be just 14.1 from 22.5 after NY empire state manufacturing index coming up to 10.6 and it was forecasted to be 3 from -11.1 which could support the US stocks to keep most of its gains and God Willing, we are waiting this week for US Existing Home Sales of November to be 4.75m from 4.43m in October and New Home Sales to be .3m from .283m in October and also US Q3 GDP to be 2.8% from 1.7% in the second quarter yearly while the US stocks are still finding support from the tame inflation pressure which encourage the Fed to keep its quantitive easing policy for a longer period if not adding more funding steps to it, as we have seen recently that US CPI of November coming at .1% monthly while it was expected to be .2% and the core figure excluding the food and energy could rise by .1% as expected after 2 months of flat reading maintaining of the Fed's view and monetary policy supporting the stocks prices but forcing countries like Sweden to raise the interest rate for curbing the investment spending and cooling the economy with the depreciation of the greenback versus the energy and commodities prices and also in Korea and China which attracted the market focusing by increasing its banks reserve requirements six times this year by 0.5 percent for curbing the inflation upside risks as the most preferred way to the Chinese until now than hiking the interest rate or letting the Yuan to appreciate further criticizing this US quantitive easing policy of US which is causing a devaluation of the greenback hurting their economic growth and their exports and also their stocks markets and in the same time helping to tightening the US trade deficit which came down in October to 38.7b$ from 44.6b$ in September while the market was waiting for 44.8b$. The European stocks markets have been underpinned recently by the ECB supporting of the bonds markets lowering the yields giving back some lost confidence to the investors last month when the market was focusing on the debt crisis but these recent gains will always be under the threats of the debt contagion worries which can increase putting these stocks back under pressure and the single currency which has a weaker positions with the market expectations of pumping new funds into countries actually suffering from weak financial position and accumulated deficit like Greece which could have an extension of its loans maturity and also Spain and Portugal which is the nearest to take a share from the bailing out package which can convince Germany to add more funds to it.
While the single currency is still getting hits from the debt crisis which caused unstable political conditions in the Euro zone and austerities financial measures can effect negatively on its growth outlook while the ECB funding plans are expected to be long lived supporting the bonds prices driving the yields down for covering the deficit of the EU debt ailing countries like 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 last week which contained the market sentiment recently weighing negatively on the Euro ignoring the better than expected economic data from Germany which driving the EU economic growth up as we have seen recently the germane IFO business climate recording new historical new high in December at 109.9 since the beginning of it in 1991 after it has made 109.3 in November and the germane retails sales figure of October rising up by 2.3% monthly while it was expected to be up by just 1.3% after falling in September by 1.8% which helped EU consumer confidence getting up to new 3 years high and lead November EU manufacturing PMI index to be above 55 again at 55.3 from 55.5 in October.
Best wishes
FX Consultant
Walid Salah El Din
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