29/6/2010 - The Current Market Sentiment

The G8 and G20 did not come with what can change the market sentiment, in spite of the Chinese decision to re-evaluate the Yuan in another gradual pace saving the focusing of the G8 and G20 during the weekend on the tension between US which requests for keeping the stimulating plans worrying about the global recovery fearing of a second dip of the recession which has been caused by the credit crisis after strong rebounding in the third quarter of last year and EU countries which are suffering from unsustainable debt problems forcing them to have their risk at the top of their priorities currently relying on what has been achieved after the credit crisis after they had started to threat their financial systems and creditability itself recently raising the calls for capping the governmental spending and taking austerity measures and further imposed taxes on the banks after adopting massive easing steps in the face of the credit crisis for bailing out their economies out of the recession which caused a rapid deterioration of their financial position in the recent years after the credit crisis.

The Single currency has come under strong pressure earlier this month with the increased worrying about Hungarian financial situation because of the debt crisis and the exposure of the European countries banks to its debt especially after the release of the ECB report which has warned about the long term debt refinancing in Europe which looks in need of 800 billion euros by the end of 2012 suggesting that the European banks are in need to be ready for facing bad loans following the debt crisis which can reach 123 billion euros for 2010 and 2011 to reach 105 for 2011 and for facing the bad loans from 2007 till 2009 they should be ready with 238 billion euros. The financing problems have seemed ahead from the ECB report showing a serious need for storing stability and injecting funds into the nerves of the European banks too as the European governments which can transfer the problem to the balance sheet of the ECB threating the single currency again.

The Single next resistance should be again at 1.2452 after failing to hold above it in the beginning of last week and then 1.2598 then 1.2685 which was the recorded previous high of last May and from it the pair fell breaking 1.2143 while the next support should be at 1.2207 then 1.2165 then 1.2044 and 1.1954 which was the pair low after falling from 1.2073 and it could protect the pair from making a newer low again below 1.1875 which has become the pair main defending line before 1.16 whereas the pair has started its rally to 1.604 before falling again to 1.233 amid the credit crisis and rising back forming a lower high at 1.515 in the beginning of last December to ease back to the current levels on the pressure on the debt crisis which has been started in Greece attracting the market focusing.

We have found the optimism containing the market sentiment sparked by the Chinese decision to take another gradual step from China for re-evaluating its Yuan in the beginning of last week but with the market profit taken after the decision, the Dow has given back its opening gains to close the week losing more than 300 points. The single currency came under pressure easing to 1.2207 versus the greenback after the release of the disappointing new home sales of May which were waited to be 470k from 507k in April but they have shocked the market with just 300k falling by 32.7% while it was trading above 1.245 in the beginning moments of last week as the other Asian counterparts markets have found in the Yuan appreciation better chances to their exports. The Japanese yen has been the biggest winner gaining strong momentum last week trading now below 90 versus the greenback and also the Aussi has been well supported as Australia is the main commodities recourses provider to China which can buy more by its higher Yuan value.

By God's Will, The market is waiting this week for June US ISM manufacturing index to be 59 from 59.7 in May and EU PMI manufacturing index to be 55.6 again as it was in May. We wait also for US June ADP Employment to be 59k from 55k in May before the release of US non-farm payroll of June which is expected to be to lose 100k after adding 431k in May and we have also today the release of June US consumers confidence index which is expected to be 62.9 from 63.3 in May.

Best wishes

FX Consultant

Walid Salah El Din

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