The stability came back to the equities markets after Mubarak's resignation leaving the presidency authorities to the high military council in Egypt which announced its working for achieving the revolution goals reducing the risks threating the markets from the turmoil continuation in Egypt. The oil prices got down and the gold as well as the confidence in business spending rose up and the oil supplies from the Middle East have become safer. The improving of the inventors' risk appetite could help Dow to make another new year high again at 12285 and it is expected in this new week to have a green opening in Europe and Asian which was negatively impacted by the unexpected Chinese decision of hiking the yearly lending rate by 25 basis points to 6.06% from 5.81% for curbing the inflation accumulating pressure at the current high oil and commodities prices which can lower the demand outlook of them and also the Australian dollar and New Zealand Dollar too as the nearest commodities markets to china and also these prices can get down after the cooling of tension in Egypt which was underpinned the commodities prices.
The single could find new buying again around 1.35 psychological level versus the greenback as the new developments of Egypt lowered the asking for safe haven positions lifting the demand for taking risks driving the demand of the higher yielding currencies. The single currency has ended its previous rebounding from 1.3505 just below 1.375 and headed back to this level by the worries about the debt in Europe and the crisis in Egypt which eased to drive the pair up to close last week at 1.3545 after reaching 1.3496.
The greenback can continue being under pressure in the coming period from the market focusing on the Fed's pledges of keeping its quantitive easing policy for spurring growth and demand for jobs expecting the recent rising of oil and commodities prices to have benign effect on the inflation which is expected to be well-contained over the long term by the Fed unable to cause a major change of its stimulating policy for supporting the growth which is still unable to store durable confidence in the housing and labor markets and from another side it looks that we are looking ahead of taking further tax cuts in US and this time this can be on the corporate taxes to push up the investors confidence in hiring to help its expanding in the private sector too which can be encourage further for increasing the business spending which is strongly needed to the labor market in US as what we have watched in US recently.
Also the cable which has been trading below 1.60 psychological level by the resignation of Mubarak, it could rise up above it by the pressure on the greenback as the increased demand for risky assets by the weekend. The cable has been already under pressure Since the BOE decision of keeping both of the interest rate and its buying bonds unchanged again disappointing the market speculations of having a tightening action from the MPC which have increased recently by the release of UK CPI index reaching 3.7% yearly and the previous MPC meeting minutes which have shown stronger than expected appreciation of the inflation upside risks by Mr. Martin Weale giving his vote with sentence for calling for hiking the interest rate by .25 from to be 6 to 2 to 1 decision of keeping the interest rate unchanged at .5% and its buying bonds plan unchanged at 200b Stg instead of 7 to 1 to 1 in their earlier meeting as Possen was having the same view of favoring increasing of the buying bonds plan but it looks that this appreciation of inflation was not enough again to convince the BOE to start tightening as the concerns about growth are still strongly existing as the falling of UK Q4 GDP into the negative territory at -.5% quarterly showing emerging probability of the down side risks of growth in the case of hiking the interest rate by the required pace to anchor the inflation as it is to tackle the investments too which are needed for moving up the required economic growth. So, God willing, it looks that the only available option to the BOE currently is to let the pound appreciate for containing the inflation helping the market trust in it.
Anyway, The Cable is still trying hardly now to stand above 1.60 after easing back from 1.6275 which has been reached previously with the bullish release of UK Service PMI of January rising above 50 again into the expansion territory at 54.5 above the market expectations of 53.5 from 49.7 in December but it could not even get the formed resistance at 1.6296 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 while its next expected supporting level is at 1.5962 and it can be followed by 1.582 and the breaking of it can lead to testing 1.5747 again.
FX Market Strategist
Walid Salah El Din