The investors' risk appetite improving could continue in the beginning of this week after it had started by the end of last week in the US session containing the market sentiment driving down the low yielding currencies such as the greenback and the Japanese yen helping Dow to continue gaining back some of its loses of last week by adding another 95 points underpinned by better than expected Chicago PMI release of February showing rising to 71.2 while the market was waiting for easing to 67.5 from 68.8 in January which strengthened the market optimism of the ability of the US economy to keep growing by the same fast rate it has shown in the recent few months as the economic data has started to impress the markets since the charismas until now with some worries about the labor and the housing markets are still tempering this market sentiment.
The Dow closed last week down by 260 points after three consecutive weeks of gaining drove it up to 12391 which is the highest recorded high of this industrial index since credit crisis ending before getting under pressure because of the tension in Libya and the worries about the oil supplies from the middle east and the market worries about the interest rate outlook in US which can move up sooner than expected weighing negatively on the equities markets as the recent signs of pricing power in US which we have seen rising of US Philadelphia Fed Manufacturing price paid significantly to 67.2 from just 54.3 showing strong pricing power following the release of US CPI of January which was expected to be .2% m/m and came higher at .3% while the core figure excluding the food and energy was expected to be .1% m/m and came also up at .2% from .1% in December and this stronger than expected prices data over the consuming level have come also following earlier rising of Jan broad figure of US PPI by .8% monthly and also the core figure excluding the food and energy by .5% while it was foreseen to be just .2% as the same of December showing growing prices over the producing and wholesales levels too which can trigger a tightening action by the Fed especially with the current continuation of rising of oil and commodities prices which threat the recovery and erode the Fed's efforts of easing for stimulating demand for moving up the growth.
The single currency is still underpinned by the markets expectations of having a closer interest rate hike by the ECB for tackling the prices upside risks ahead of its meeting later this week which can carry its first tightening action to the market since the credit crisis for containing the prices rising which can accumulate in Euro Zone in a fast way following UK and this was obvious recently from the ECB Member Mr. Mersch's warning about the inflation building pressure with the inflation well above the ECB target at 2% yearly.
The single currency is trying now to get over its previous formed top at 1.386 after getting over 1.374 versus the greenback and by god's will, this can open the way to 1.4 psychological level and getting over it can lead to 1.4281 which has been reached in the beginning of last November when the greenback was under pressure from the Fed's decision to add another 600b$ in another step of its QE policy for stimulating the economic growth in US.
The gold could get benefits from the rising of oil prices after the better than expected release of Feb Chicago PMI which reached 71.2 increasing the markets expectations of having stronger demand for energy from US and as a mirror of inflation, it could keep its place above its recent resistance at 1394$ and the psychological level at 1400$ which can underpin it technically to face facing its recent resistance at the top which it has formed recently at 1423$ and breaking it can lead to its recorded high at 1430$ as its properties as a safe haven with the tension in Lydia has no clear end and as hedge against inflation with the current rising of prices which are looking hard to be contained in the required pace in Europe, UK and also US which has started to have pricing power too while the Fed is still caring for helping the struggling labor and housing markets hoping for containing the inflation upside risks over the long term with no clear statement about a possible action against the prices rising over the short term until now despite the current unrests in the Middle East countries over the short term which end in a country to start in another one threating the oil supplies from this strategic important area rich of oil pushing its prices up in a way can tackle the Fed's easing efforts for stimulating demand can move the growth in US which has been revised down in its preliminary quarterly reading of the last quarter of 2011 to 2.8% from 3.2% in the advanced reading while it was expected to rise to 3.3%.
God willing, we are waiting this week for more important data to come following the release of Chicago PMI release of February showing rising to 71.2 while the market was waiting for easing to 67.5 from 68.8 in January indicating that there can be further good data to come by God's will from US and we wait to see today the release of US ISM manufacturing index to be 60.7 from 60.8 in January after the release of Feb EU Manufacturing PMI which is expected to be 59 as January and also Feb UK PMI which is expected to be 61.5 from 62 in January and later this week we are to wait for US ISM non Manufacturing index to be 56.6 from 59.4 in January and also Feb EU Service index to be 57.2 and Feb UK service survey to be 54 from 54.5 in Jan following strong rising from 49.7 in December and it is important too this week to wait for Feb US ADP Employment change of February to be 184k from 187k in January while the eyes will be focusing on the release of US non-farm payroll of February by the end of the week to be 180k from just 36k in January and it is important by the end of the week to wait too for US Factory orders of January to be up by 2.2% from just .2% in December.
FX Market Strategist
Walid Salah El Din