Trusting in the US economy ability to grow more than unchanged Fed’s Easing stance, the risk appetite has rose in the recent trading sessions following the release of US labor report of October which has shown amazing rising of US non-farm payrolls to 204k while the markets were waiting for 125k in appreciation of the negative impact of the US governmental shutdown from 148k in September have been revised up to 163k showing solider than expected recovery of the labor market unfazed of the political tension in October which has watched also stronger than expected rising of both of US ISM manufacturing index and non-manufacturing index.
You can add to these figures the US Q3 GDP annualized release which has show growth by 2.8% while the market was waiting to see growing by 2% from 2.5% in the second quarter as the stronger than expected inventory component could offset the consuming spending retreating in this period.
After these data which have made stronger belief in the US recovery, the Fed’s QE is depending on now the Fed’s appreciation of the remaining worries about the next cycle of negotiations about the debt ceiling hiking which seem to be easier than October round with lower expectations of having another governmental shutdown.
But anyway in the case of having Fed’s tapering beginning by the end of this year as it has been expected before by the governmental shutdown, the pace of it can go in a gradual way with no pressure from the inflation to drive the Fed to be in rush to cut its monthly scale of buying with the falling of PCE which is the Fed’s favorite gauge of inflation to 0.9% y/y in September while the market was waiting for 1.1% from 1.2% in August.
The US blue chips future rates have been shocked following the US report by the end of last week but with growing trust of having better growth outlook in US, they have managed to rise to these current levels while the US treasuries were facing downside pressure on increasing speculations of having sooner than later cutting of the Fed’s QE pace drove their yields up. These are standard conditions at this stance but the QE easing policy of the Fed was making a difference on its depending on buying bonds directly for supporting the economy and weighing down on the yield.
Despite the energy prices rising by the belief in solider recovery of the US economy later next year can underpin the demand for it, The gold could not hold above 1300$ with this sentiment and it is now struggling near 1280$ per ounce with lower demand for safe haven position and it can face in the case of going down further other supporting levels at 1269$. 1251$, 1242$, 1202 before its low of the year at 1180$ while going up over 1300$ level again can be faced by resistances at 1327$, 1361$, 1375$ before 1400$ psychological level.
While the greenback is still supported generally by the growing expectation of having tapering of the Fed’s QE sooner than what was expected, it could maintain a place above 99 versus the Japanese yen which always suffers from the risk appetite rising as a funding currency with the BOJ’s Abenomics for fighting deflation while the cable could not be able to keep its previous place above 1.60 psychological level trading since the beginning of the week beneath it.
While the single currency which has started its falling even before the ECB’s expected cutting of the interest rate to 0.25% which looked unexpected decision to some market participants has managed yesterday to correct some of its losses getting use of the risk appetite to be traded back near 1.34 while the worries about facing deflation in EU are still looming around of it despite Draghi’s tries to avoid talking about the deflation risk just saying it’s not a threat yet and the decision of cutting was in line with the forward guidance of the bank which has told previously that it can keep the interest rate at this current level or lower and it is just eager to have a shorter time of the prices easing power which can be for a prolonged period of time before returning gradually to the ECB´s target level of 2% opening the door for having proposals of having another interest rate cut or having unstandard measures like the LTROs which will have its 3 months offering extended at least until the second quarter of 2015 after last week meeting of ECB members who can find stronger EURO unwelcomed in the way of fighting prices downside risks in EU while the exporting activity can be in the need of stimulation for supporting growth of its industrial countries.
Kind Regards
FX Market Strategist
Walid Salah El Din
Mob: +20 12 2465 9143
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