The Single currency could find support versus the greenback to rise to 1.2976 until now with the release of Germane CPI flash reading of May which indicated rising of the inflation pressure over the consuming level more than what was expected to repeat of EU M3 has told too this morning by rising also more than expected increasing the possibility of pushing up the inflation in EU.
These worries about the inflation up side risks in EU have come also with rising of the germane unemployment change of May by 21k which is the biggest amount since Jan 2012 and also lowering of OECD forecast of EU GDP to be down this year by 0.6% from 0.1% it has foreseen in January.
OECD has argued consideration from the ECB side of adopting a Q.E and lowering the deposit rate below in the negative territory to push up the investment and improving the credit conditions.
And so, the EU major stocks indexes have come under increased pressure today with these data which have shown more difficulties in front of the ECB can cap it from stimulating further the EU stagnant economy.
In the same time, it looks that the equities market will live sooner than later the stance of reducing the Fed’s support and this has been obviously watched yesterday by rising of the US 10 years treasuries yield to the highest rate over the last 14 months and also the rising of the yield of 2 years note after an auction of it pushed it up to 0.283% from 0.233% I n the previous auction on 23rd of last April and this can be repeated with the medium term bonds which can be published next from US at least till the market realized the quantity of cutting of the current QE cutting which the Fed can do.
Last Friday the Fed’s Governor Bullard of St. Louis has said that this could be between 15B to 20B which can be equivalent of the impact of hiking the interest rate by 0.25% when the Fed is to decide to do it as he said.
This issue is expected to contain the market sentiment By god’s will however the Fed is not under pressure to do with this current tame inflation pressure in US and Ben Bernanke has tried also to say that we should not rush to do it when he gave in the same time last week the probability of cutting the QE this year to the markets in his testimony.
But it look that the Fed can refer to that in the next meetings and it can also change the limits language which have put previously of dragging down the unemployment rate to 6.5% if we are not to face inflation year rate at 2.5% which are looking to the market participants wide rates currently to be met this year.
While you can see that the greenback has managed to start to react positively recently with the US positive data as clues of tightening step to come to the monetary stance as what’s usual before the credit crisis which put the risk aversion in impact insight of the traders vision causing problem to the low yielding currencies in the minutes of the market sentiment improving such as the greenback.
Kind Regards
FX Market Strategist
Walid Salah El Din
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