Dow could close last week up by 117 points for the third consecutive week despite the Chinese second interest rate hike this year which was weighing negatively on the stocks but US last session moments of the week have been contained by market optimism sentiment by better US earning reports to come supporting the US stocks market which has been still contained by the earlier better than expected release of US Philadelphia Fed Manufacturing Index of February which was expected to be 21 from 19.3 in January and it has surprised the market by 35.9.
The greenback came under pressure across the broad by this optimism containing the market sentiment pushing Dow to close at the high of the session at 12391.29 as the greenback is still the well used currency for carrying risks on its low yielding and the recent maintained view of the fed of keeping the interest low as much as it can keeping its quantitive easing policy unchanged for supporting the struggling labor market and unstable housing market as the Fed sees that the current growth pace can not afford the required job of consuming sentiment to drive up these sectors which are in need for more confidence in both of the business and consuming spending in spite its recent upgrading of its growth expectation of this year to be from 3% to 3.6% to 3.4% to 3.9%.
The gold is still well supported too as the market is still see in the Fed's language speculating of having well contained prices over the long term despite which have been seen recently of 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 be resulted from the rising of the commodities and oil prices which are underpinned by anticipated stronger than expected demand from US on its current held accommodative policy and better than expected signs of growth which can encourage the demand for these row materials utilization while their prices are still fueled by the concerns about the current unrests in the Middle East countries which ends in country to start in another one which can make the oil supplies unstable from this strategic important area rich of oil and because of that the gold has been able to get over 1390$ by the end of last week facing the recent resistance at 1394$ and getting over it should be followed by testing the psychological level at 1400$ and the breaking of can test lead to the recent top of it at 1423$ and the recorded high at 1430$.
The single currency has come under pressure last week as the market sentiment has been contained by seen weakness in the germane industrial pace by the end of last year as the falling of December germane industrial productions by 1.5% while they were expected to be up by .2% from decreasing by .6% in November and also the dovish falling of Germany factory orders by 3.4% monthly in December from gaining 5.4% in November while the market was waiting for shrinking by 1.4% to show easing of the demand of capital good from Germany which affected negatively on its 2010 Q4 GDP preliminary reading to be lower than the market expectation of .5% at just .4% and these dovish figure has come with the release of February germane economic sentiment ZEW which was expected to be 20 from 15.4 in January shocking the market by getting back again to 15.7 to weigh negatively on the single currency which was depressed by 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 and also by increased probability of the needs of rescue WestLB bank in Germany and but the pressure on the single currency has eased by its announcement of selling four parts of it having new structure to get over its accumulating loses by 2015 starting ascending back again and getting momentum by its ability to make a new higher low at 1.3545 following 1.346 and 1.3427 to break 1.364 resistance facing now a new resisting level at 1.374 and getting over it can open the way to the previous formed top at 1.386 versus the greenback which became under pressure from being funding currency of taking risks in the benefits of the higher yielding currencies while the Euro is underpinned now again now by increased markets expectations of having a closer interest rate hike by the ECB for tackling the prices upside risks pressure which can accumulate in EU in a fast way following UK.
The cable which has been already supported by the release of Feb UK CBI industrial output which surged to 32 from 17 in January and exports orders which came at 11 from 0 in January which is the highest rising since 1995 has got another push from UK retails sales of January which jumped monthly by 1.5% while the market was waiting for just .5% to get over the resistance at 1.6182 after easing from it earlier following King's comments which brought down the interest rate outlook in UK after it had been supported by the rising of Jan UK CPI to 4% earlier as his comments have shown a greater than expected appreciation of the growth down risks which face the UK economy which has already shrunk in 2010 Q4 GDP by .5% quarterly showing emerging down side risks can face the growth in the case of hiking the interest rate by the required pace to anchor the inflation as it is to cool the economy further tackling the investments which are needed for spurring growth and so the cable has fallen below 1.60 after these comments which have followed the higher than expected release of UK jobless claimant rising by 2.4k while it was expected to decrease by 3.3k as a reflection of the current struggling economy in UK which is facing emerging stagflation risks at the current high prices capping the BOE ability to take a clear tightening or easing direction currently and 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 which has been dampen by the recent weak economic releases from UK triggering these recent comments by King and the inflation quarterly report release which has shown to the market that it is required now from the UK economy to come over this phase by finding the sluggish demand to produce at these current high prices which face it as the action of tightening at the required rate for containing these prices should have strong negative impact on growth which is required strongly too.
by God's will, The Cable should face now 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 main resistance at the top formed 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