17/5/2010 - The Current Market Sentiment

There was a panic in the market after the massive falling of the single currency versus the greenback last week which extended below 1.24 while it was trading above 1.3 after the announcement about reached agreement with the IMF to provide 750 billion euros in a rescue package plan under the request of the European countries which are facing debt problems opening the door for the ECB to start discussing and buying European bonds by the volume which it sees suitable after the market has been disappointed by Trichet's comments about not discussing this issue in the ECB previous meeting!

The market has digested the news which could calm down the investors quickly focusing on the impacts of this announced package over the long term at the current low economic growth rates in the Euro zone which has risen by just .2% in the preliminary reading of the Q1 of this year which is not yet negatively impacted by the debt crisis and the requested austerity measures from IMF, the ECB and the European governments which will cap the governmental spending affecting negatively as well on the GDP of the EU countries which are actually struggling lagged behind US encouraging underpinning the greenback from another side.

After the strong opening of the single currency last week above 1.2875 which was its previous support of April 2009 getting momentum to continue its rally to reach 1.31 after the rescue package announcement before losing it falling back again below its psychological level at 1.3 in a continuous selling could break its recent low at 1.252 closing last week just above 1.233 which was the formed main bottom of October 2008 amid the credit crisis at 1.233 and by god's will, the breaking of it can lead to the main support level of the pair at 1.16 whereas the pair has started its rally to 1.604 before falling to 1.233 and rising back forming a lower high at 1.515 in the beginning of last December.

As long as the current market sentiment is still dominated by the debt crisis in the Euro zone and its consequences which can effect negatively on the growth outlook in the Euro area which is already struggling, the risk aversion can continue containing the current market sentiment driving the European equities markets down helping the gold to creep up again above 1200$ breaking its previous recorded high on the third of December 2009 at 1226$ trading currently above 1230$ after it has been exposed to profit taken with the strong falling of the oil prices but it could come back again easily to its uptrend getting back above 1200$ finding support above 1150$ closing as it is still the well-chosen option to the investors who are looking for the best safe haven with the current global missing trust in the bonds attractiveness and increased worries about its rewarding as a fixed income option to the investors who are looking for a saving option of their money value and that's rather than the increasing of the commodities and energy prices which are still pushed up by the current low accommodative levels of interest rate across the broad which is lowering the cost of borrowing from a side and the value of the currency from another side.

God Willing, it is important to wait today for US May NY Fed Manufacturing which is expected to be 30B from 31.8B in April, US March Net Long-term TIC Flows 50B from 47.1B and US May NAHB Housing Market Index which is expected to be 20 from 19 in April

Best wishes

FX Consultant

Walid Salah El Din

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