The US dollar is still retracing back its recent loses which exacerbated last Friday loses with the release the non-farm payrolls of July which lost another 131k weighing negatively on the greenback across the broad as it effects directly on the interest rate out look differentials of the greenback as the decision of hiking the interest rate has become harder to the Fed which is focusing on the labor market developments worrying about expected slow down of the growth in US in the second half of this year. The treasuries yields are still depressed negatively impacted by the by this meeting ahead and the risk aversion which threats the equities the markets as in spite of the announcing about further easing steps can support the stocks, it can add worries to the markets investors about the US economy. The market is looking preferring taking the safe side anxiously waiting for this week Fed's meeting squaring its risky positions buying back the low yielding currencies as it perhaps smooth the markets for a new easing step by taking a softer language than even its recent meeting when it has highlighted the Fed's worries about the growth flattering before it can have further negative impacts on the demand for consuming and investment again.
From my point of view, The Fed can show readiness for loading further mortgage back securities which can help resorting confidence in the banking sector which can suffer from the falling of the housing prices but this is an expensive option and in the same time not enough to afford jobs to the real economy sparking demand avoiding recession again although a collapse of US housing sector can bring back the credit crisis impacts on the financial markets last year and how it dragged down the global economy. So, any taken action should work in these both sides for having effects.
The traders are still closely watching the USDJPY at this critical level which can trigger interventions by BOJ as it is hard to relinquish to the demands for watching its currency strengthening amid dovish labor data weakening the greenback interest rate outlook and triggering unwinding of the carry trades which can effect severely on the Japanese economy which depends on the exports, in a time of an expected consuming weakness from US which is waited for important retail sales figures by the end of this week about July after falling by .5% in June monthly and also cooling growth tries in China which has increased worrying about prices currently as we have seen it last week calling for banking stress test suggesting declining of the housing prices by 60% which is the double of what was initially made at just 30% and it has obeyed for demand for further re-evaluation step used to be named gradual action by PBOC after it has actually reduced the banks lending percentage to their capitals from the beginning of this year which worked too for the demands of cooling this overheating economy which caused prices rising risks could be appreciated finally by PBOC which can effect negatively on its demand for capitals goods from Japan and we have seen the Chinese PMI index coming down in July to just 51.2 while the Euro zone as a counterpart competitor of Japan is getting use of the EUR exchange rates which is trading currently below 114 versus the Japanese yen and it is exposed to get down below 110 if BOJ allowed to its currency to appreciate further versus the greenback breaking 84.87 support of the USDJPY which is still holding since July 1995.
The single currency could get above 1.33 for a while touching 1.333 after the weaker than expected labor report of July underpinned by Trichet's comments in the ECB press conference after its decision to keep the interest rate unchanged again at 1% last Thursday which referred as anticipated to the debt crisis easing effects on the growth in the Euro zone expecting it to be better than what was initially estimated welcoming the stress test results which calmed down the markets relatively recently breaking its recorded recent high at 1.326 after it could finally have footing above 1.3 versus the greenback last week to jump above its previous solid resisting area between 1.3096 whereas the pair has fallen making another lower high on 10th of last may after breaking it as a support and tested it back as a resistance and 1.3114 which is the 38.2% Fibonacci retracement level of the falling from 1.5142 to 1.1874 getting strong momentum to get 1.3261 before easing finding support at this same mentioned area successfully testing it back as a support first time making a higher low at 1.3117 which is expected to meet the current easing again. The next major supporting levels are expected to be at 1.3096 then1.2735, 1.255, 1.2452, 1.2165, 1.2044 and 1.1954 and 1.1875 from 1.1875 which has been reached amid the increased worries about the debt crisis and could cap the pair from falling to 1.16 whereas the pair has started its rally to 1.604 before falling again to 1.233 amid the credit crisis and rising back forming a lower high at 1.515 in the beginning of last December while the major resistances are at 1.333, 1.3352, 1.3415, 1.3704 and then 1.3885 which is 61.8% Fibonacci retracement level of this same recent declining from 1.5142 to 1.1874.
Walid Salah El Din