It is a good week so far, and into the European session today the sentiment was still holding up in a face-off between upbeat expectations and forcefully silenced jitters! If you sincerely scrutinize the situation you will discover that the players have not changed the game did, and as the phrase explains itself, the undergoing reverse market psychology is mere proof that we are about to enter a new bear trap!
With volume trimming as the week grows older ahead of the holidays, the market is unleashing suppressed potential that was pressured by debt-laden European nations. The endorsed Greek aid by the 16-nation euro leaders was capable of halting the continued euro degradation, and jolted the hemorrhage across financial hubs, as default was old news and support is now available.
Thinking about it, if they had not given the bailout, the conditions for Greece will not have worsened much beyond that, considering their insistence that Greece will not need the bailout! And considering markets were that dissatisfied by the country remaining helpless and alone to face the beast, technically the provided bailout should not have been sufficient to convince markets otherwise and trigger this euphoric sense of optimism in the market!
Truth be told, the euro area's fundamentals are still sound and intact as they were before the Greek crisis, confidence is on the rise and the recovery is undergoing. We hit the breaks in the past quarter with a sluggish 0.1% expansion and standstill in the area's largest, Germany. France at least was unrevised today with 0.6% expansion, yet the first three months of 2010 have not been that pleasant with the unexpectedly cold weather, well too bad Merkel will not have my backing on this one as it was the case with Greece and the speculative power, as it would be too radical to assume mother nature has it too for the euro area, since seemingly everyone does!
Till midsession today, the euro was trading with volatility and again held back by 1.35 areas, where it failed till now to stabilize above it, setting the high of 1.3536 and declined once more to trade currently around 1.3480, though remains off early set lows at 1.3451. With lack of bullish momentum the tendency is still bearish, and technically it is over short term basis as far as 1.4410 is intact; fundamentally speaking, and regardless of our lack of market enthusiasm for the bailout to Greece, still good data on queue from dominant sectors and unwinding of pessimism might take the euro to test upper technical boundaries for the time being.
As for our star of the day, a 21-gun round of salute is humbly presented to the royal pound which is surely on a roll today! The unexpected -and surprising I might add- revision to the fourth quarter GDP to confirm the 0.4% exit of the longest recession on record helped unload some of the downside burden that has been haunting the worst performing major currency!
Surely the depreciation of the pound did help and supported exports which we expect to have done good in this quarter, household expenditure rose as they took advantage of the holidays and the last months of the VAT cut; production and services both expanded and the government expenditure of course was strong.
Either or, UK is not doing so badly, and the continued expectations for the economy to relapse is easing and markets are drifting from their initial expectation for an increased APF, which as we told you before, is too early to gamble on! Sterling managed to hit the fresh high at 1.5090 and trading around the session highs at 1.5085 off early set lows at 1.4971; over intraday basis the pair might start to trade with volatility and reverse lower with the lack of bullish momentum though areas above 1.5040 remain tempting for the pair to head higher to test 1.5150 areas to extend the short term move to the upside.
Moving on to the Japanese yen, well frankly speaking, ever since I saw the upside rush for the dollar versus the yen last week, some sense of relief was creeping into my soul, as at least some rationality is coming back. Regardless of the caption in the market, that the yen is a low yielding funding currency and conditions are not supportive of carry trades, the fundamentals surely did supporting the continued pair rise! The doubling of the BoJ lending program and deflation threats are taking hold now and we are happy it is! The pair today was capable of hitting the low of 92.10 which held strong to reverse the pair higher striking the high at 92.72 and steady now around 92.50.
Why I feel strongly for the yen, well this is the case; the Japanese economy is in need of a weaker yen to start recovering! No really, patterns were returning to the market, and though majors have been battling their own hidden skeletons, the dollar was starting to move on its own stronger merits, and not just haven so we need to give it credit for it at least!
The dollar this week is on the slide on the rising confidence and the heading to higher yielding assets, yet again investors are reconsidering the pessimism on remaining assets less than the optimism over the dollar. House prices expected today are with a drop yet confidence is expected with a rise. The index so far is trading with downside tendency hitting the low of 80.99 and currently off lows around 81.18.