The improving of the market risk appetite and the growing concerns about the inflation in the Euro zone have contained the market sentiment pushing the single currency above 1.365 ahead of waited resistance at the recent previous top of it versus the greenback 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 which has been repeated again highlighting a closer than expected tightening actions from the ECB can lead it to revise down its provided ample of liquidity for supporting the ailing countries of debt and raising the interest rate giving much care to the easing value risks of the single currency which continued to have better its recovery signs by new better than expected rising release of preliminary reading of EU Jan PMI non-manufacturing index to 55.2 while it was waited to be 54.2 and also Jan Manufacturing index which was nearly at it is similar strong pace of expansion by 56.9 coming down from expected 57.1 in December and this new data has come to show that there is no worrying growth downside risks can cap the ECB from tightening as they came after 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.
The improving of the market confidence has been really obvious this week by higher demand for the high yielding currencies for taking risks and lower demand for gold which has been hit again by the Saudi oil Minister's expectations of similar oil prices in 2011 to 2010 with increased probability of pumping more oil in the case of the demand increasing driving the oil prices down weighing negatively on the gold to face another supporting level at 1329.$ and breaking it can lead to 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 Aussi could come up over parity again before correcting to .995 currently after reaching .983 and the Kiwi which has fallen 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 could come back above .765 thanks to the taken tightening actions in New Zealand thanks to the improving of the market sentiment which pushed greenback down and the Asian equities markets up following US which had strong gaining session drove Dow up further to be close to another jump above 12000 psychological level.
The Japanese yen could also keep its gains trading currently at 82.4 versus the greenback after BOJ keeping of the interest rate unanimously from 0% to .1% revising up its real GDP median view strongly to 3.3% this year from 2.1% in its recent meeting in October keeping its median view of core CPI unchanged at in 2012 at .6% revising up it in 2011 to -.3% from -.4% referring to expected rising of the commodities prices can increase the inflation but it is expected to be moderate inflation with the recovery outlook this year.
While The cable is still trading around 1.60 psychological level as it is still 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 while the current economic situation is still looking in need of BOE easing measures.
The cable next support is expected to be at 1.5835 where it has tried to form a new base before to continue ascending up 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 and it is expected to give better economic out look in US later this week after keeping this package unchanged last month.
God willing, we wait from UK today for Q4 GDP to be up by .5% from .7% in the third quarter and yearly to be up by 2.6% from 2.7% in the third quarter and we wait also from US for the broad consumers confidence index of January to be 54.5 from 52.5 in December while November housing prices index is expected to be -.1% from .7% and Jan Richmond Fed Manufacturing Index to get down to 23 from 25 in December.
FX Market Strategist
Walid Salah El Din