The single currency has had another strong push by rising of the IFO Germane climate index to another all times high in January at 110.3 after reaching 109.9 in December and this strong figure has come after the recent better than expected January Germane ZEW economic sentiment which had come at 15.4 from 4.3 in December while the market was waiting for just 6.3 could and also January EU ZEW economic sentiment which reached 25.4 and the markets were waiting for 17.3 from 15.5 in December to underpin the growth outlook in the Euro zone fortified by strong economic expansion in Germany helping the single currency to get over 1.36 by the end of last week the next supporting level is expected to be at the recent previous top at 1.379 and this can form a stronger level as breaking it can open the way again to 1.4 psychological level while the way down should be met by supporting level at 1.326 where it has dropped to this week and this level can be followed by 1.309 and then the recent bottom of the pair at 1.287 level where it could rebound from recently by repeated Portuguese denying of the need for this made package by European countries and the IMF and the Japanese promises of buying European bonds this month could help it to rebounds dueled by markets cheeriness of successful bonds auctions in Portugal , Spain and Italy and also Trichet's reference to building inflation pressure in the Euro zone after the ECB recent meeting when it has decided to keep the interest rate unchanged at 1% again which can suggest that there is another pressure on the ECB for capping its funding reducing its provided ample of liquidities fearing of further inflation pressure directing some of their care to the easing value risks of the single currency which could have another strong week after closing at 1.3882 a week earlier rising from this aforementioned low at 1.287 versus the greenback giving strong fast containing reversing sign as the worries about the EU debt contagion have calmed down especially after the direct EU Financial ministers reference to add more funds to the EU and the IMF package for lending the EU debt ailing economies and ruling banking stress tests as in US for giving better transparent view to the markets about the current EU banking sector crediting position and god willing, we wait today too for new important data from the Euro zone as the release of EU Jan PMI Manufacturing index is expected to be at 57.1 and the non-manufacturing index to be 54.2 as the same as December.
The Asian markets have been possessed by the end of the week by the Chinese interest rate outlook despite the easing of the Chinese CPI to 4.6% from 28 months high in November at 5.1% yearly, it could not sway the markets from expecting further tightening actions from PBOC as its Q4 GDP came up yearly by 9.8% and it was expected to be just 9.6% and also December retail sales of December rose by 19.1% while the markets were waiting for just 18.7% and December industrial productions came up by 13.5% and they were expected to be 13.3% which show to the markets that the economic growth in china is still strong opening the door for further tightening which can lower their demand for commodities which can effect negatively on both of Australia and New Zealand exports and GDP as well as they are the nearest markets to china which put pressure on the Aussi to reach .983 and the Kiwi to fall to .7525 from .7785 undermined by lower than expected December all industrial activities index release which came down by .1% while the markets were waiting for rising by .2% from declining by .2% in November and also import prices in December came down by 3.8% quarterly while they were expected to rise by .9% from .8% a quarter earlier thanks to the taken tightening actions in New Zealand.
The gold also as a mirror of inflation has come under pressure since the recent strong easing of CPI in China during December and also the better than expected weekly US inventories of the crude oil which rose by 2.6% from falling a week earlier by 2.2% while the markets were waiting for declining by 1.1% which weighed negatively on the oil prices and from other side, we have had new better than expected weekly initial jobless claim which came down to 404k and they were forecasted to be 425k from strong rising to 445k a weak earlier and also US existing homes sales of December which rose to 5.28m from 4.7m while the markets were waiting for 4.8 m monthly in December to be up monthly by 4.5% from 5.6% in November and also US leading indicator of December which was forecasted to be .7% from 1.1% in November and it could rose to 1% which come in line with the recent growing market expectations of having better growth rates out from US this year by God's will.
The gold has broken 1360$ supporting level ending the week below 1340$ and its next expected support is expected to be at 1329$ and then 1315$ after it had been under pressure recently getting down below 1400$ by better US growth outlook could contain the market sentiment bringing back the market confidence in the US economy and the investors' risk appetite of business spending in the greenback which is expected to be much credibly wanted this year having stronger yielding debt outlook reducing the market demands for safe haven stance currently.
The cable could close the week hardly above 1.60 psychological level negatively impacted by UK retail sales of December which have slumped by .8% while they have been expected to get down by just .1% from rising by just .3% in November and UK mortgage approvals which have fallen to 40.00k from 48.00k while the market was waiting for 49.00k. the cable could rise to 1.6058 on strong December inflation data out from UK earlier last week as UK CPI has reached 3.7% yearly while it was expected to be just 3.3% while the monthly figure has been 1% and it was expected to be just .7% which could show that the UK economy is exposed to stagflation risks this year as it has become ruled out to have a new added funds to the BOE 200b Stg buying bonds plan, if there is a new tightening action from the MPC to come for fighting the inflation upside risks as Andrew Sentence the only MPC voting member who has called for hiking the interest rate by 25 basis points in their last meeting and we wait to hear from him again about his appreciation of the current inflation pressure which can support the British pound while the current economic situation which is still looking in needs of BOE easing measures.
The cable retracing back to 1.5835 where it has tried to form a new base before to continue ascending up as what has been mentioned before in the recent reports making it its next supporting level 1.5835 again and breaking it can lead to 1.57 then 1.558 while the main supporting level is now at 1.534 where it was its recent bottom while the next resisting level can be at 1.6092 then its recent main top which has been formed in the beginning of last November at 1.6296 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.
FX Market Strategist
Walid Salah El Din