4/9/2012 - The Current Market Sentiment

[walid]

The single currency could rise over 1.26 level versus the greenback during the Asian session after a calm beginning of the week waiting for the ECB's meeting next Thursday by god's will while the expectations are increasing concerning a close ECB's buying bonds plan.
The single currency could find this ability to rise again following the EU parliament member Jean-Paul Gauzes has said about it that it can be by buying bonds up to 3 years on the ECB current readiness according to what its president Draghi has said driving up further the future rates of the European Stocks indexes after a cheered session yesterday while the US market was off because of the labor day in US.
The markets can find in such a plan a given space to the EU debt ailing governments and its banking systems under easier credit conditions after the ECB Ltro1 and Ltro2 waiting for the ESM activation which may be next month as the bailing out plan manager Regling recently showing readiness of helping the recapitalization of the Spanish banking system from its side whenever it has become active.
Anyway, the market is waiting now for a new action by the ECB after its LTROs 2 rounds which rescued the EU banking system by giving loans passed a trillion of Euros for 3 years with just 1% yearly interest rate with its easy collateral rules which could open the door for the small banks too to get use of them but until now the argued effects of these 2 rounds of unstandard measures on the EU economic performance have not been materialized yet showing how much the EU economy was under critical conditions that it is still looking in need to be refreshed by new measures for encouraging the lenders and the borrowers too at a higher level of confidence at least over the short term after The ECB had lowered all of its key rates by 0.25% last July driving down the discount rate to be zero currently the refinancing rate to be 0.75%. So, having nothing from the ECB next Thursday by God's will can be a new hit to the current market sentiment pushing down the investors' risk appetite raising the market worries about the EU economic conditions.
From another side, the markets will be looking for new clues about the US labor market which always takes the care of the Fed waiting next Friday for US non-farm payrolls which are expected to be 122k in August after improving in July to 163k in July from 64k in June could help the greenback to not come under strong constant pressure showing light pressure on the Fed to take new easing step by announcing a QE3 soon.
But now the USD is under pressure as the market sentiment has been shifted from discounting an easing action by the Fed, if the US economy to deteriorate further to such an action from the Fed, if it is not to improve soon since the release of the minutes of the Fed's last meeting in august which can suggest that having non-farm payrolls numbers again below 100k in September as what have been in the previous 3 months to July can warrant a new action by the Fed instead soon of waiting for having negative numbers again as most expectations were referring by these minutes.
God willing, The single currency is expected to meet resistance again at 1.2636 whereas it failed to surpass by the end of last week and this can be followed by another resisting level at 1.2693 before 1.2748 which has been reached after the recent parliament elections in Greece in last June while easing down back again can be met with supporting levels at 1.2464, 1.24., 1.2241, 1.2134 before 1.2042 which could stave off the pair falling last month and in the case of falling below it, this can open the way for testing 1.20 psychological level which can be followed by reaching 1.1876 again whereas the pair has rebounded forming its bottom on 7th of June 2010

Kind Regards
FX Market Strategist
Walid Salah El Din
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