3/9/2014 - The Current Market Sentiment

[walid]

The changes in the bonds secondary markets are still containing the market sentiment in the forex market. The greenback could be boosted this week by rising of the US treasuries yields ahead of awaited good news about the US labor market this week.

While the sovereign bonds in EU were watching stabilization, after massive falling last week led the Spanish 10YR yield to reach 2.08%, before climbing up to 2.26% currently recovering most of its loses following Draghi’s dovish comments from Jackson Hole which suggested higher probability of watching a QE plan in EU sooner than later for facing the deflation pressure.

Spanish 10YR yield has reached 2.08% a week ago on these prospects which are looking to be materialized with negative yearly CPI in EU to have wide approval in EU and special approval from Germany which is still criticizing this step.

The ECB is expected to direct stronger message tomorrow by God’s will to tell the market that it is ready to offer what’s more for fighting deflation and growth down side risks on its mandate.

In the same time, the ECB is not looking close yet to take such step which can be conditioned for having germane approval in the case of taking it.

The ECB is ahead to more TLTRO rounds can reach 6 rounds with €1 trillion offering, After the last 2 rounds of TLTRO in December 2011 and in February 2012 could help merely to rescue the EU banking sector and bring the stability back to it after it had been in a critical position before the end of 2011 drove the bonds yields up, before beginning of it to spectacular levels have not been seen since adopting the common currencies in the debt ailing peripheral countries.

But it looked not effective in the real economy which is looking in serious need for direct support can be by a QE, as the previous LTROs which have been directed to the banking sector have actually led the ECB later to drove the deposit rate to zero in July 2012 for moving the banking sector to lend, before driving it below zero last June.

The single currency which has become less favorable as a reserve currency by the negative deposit rate is still looking in critical position with this dovish sentiment persisting which weighs down on the yields curves in EU which are actually undermined by the geopolitical tension in Ukraine specially the germane bonds yields which are running currently below 0% for 2 years and one year.







Kind Regards



FX Market Strategist

Walid Salah El Din

Mob: +20 12 2465 9143

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