The European equities indexes could have a strong opening following US as the brought back stability after Mubarak's resignation by the end of last week leaving the presidency authorities to the high military council in Egypt which announced its working for achieving the revolution goals turning down 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 as the oil supplies from the Middle East have become safer but this improving of the inventors' risk appetite has been short lived in Europe as the worries about the financial market have come back containing the market sentiment with increased probability of the needs of rescue WestLB bank in Germany and the European financial ministers announcing about their eagerness for moving up their ability for lending to 500 billion euros from the beginning of 2013 which show to the markets that their current 250b euros sharing package with the IMF is not enough to save the expected requests of borrowing.
By the end of last week, 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 but the single currency came under pressure again falling below 1.35 on this dovish sentiment before bouncing from 1.3427 trading currently just above 1.35 waiting by god's will for the release of EU Q4 GDP to be up quarterly by .4% and yearly by 2.1% from .3% and 1.9% in the third quarter of last year and also the release of germane economic sentiment ZEW of February which is expected to be 20 from 15.4 in January and also the European figure to be 31 from 25.4.
While the Asian equities markets which could get use of the bullish closing of the US equities indexes in the beginning of the week, they have come back under the pressure of the interest rate outlook in China after the release of its CPI of January which rose up to 4.9% yearly after easing in December to 4.6% from more than 2 years high at 5.1% in November which can trigger PBOC to hike the interest rate sooner than later capping the gains in Asian stocks markets which have not found in the BOJ assessment after keeping the interest rate at .1% and its buying bonds plan worth about 60 billion dollar unchanged what can push up the sentiment about the Japanese economy which is still fighting the deflation risks as we have seen its Q4 GDP coming at -.3% yearly down by 1.1% quarterly too.
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 new worries about the budget deficit in US after Obama's announced plans to have it at 1.65$ trillion in 2011 which can be more than 10% of the GDP this year and 1.1$ trillion in 2012 and then falling to 0.607 trillion before 2015 and in the same time he is looking for lowering 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.
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.
The British pound has been under pressure by the recent 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 since the release of December UK CPI index which has reached 3.7% yearly and expected to continue rising above 4% in January as we wait today to see and also the previous MPC meeting minutes release 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.
FX Market Strategist
Walid Salah El Din