UK Service PMI of January which has risen above 50 into the expansion territory at 54.5 above the market expectations of 53.5 from 49.7 in December could contain the market sentiment pushing the cable up above 1.625. The British pound is still well supported by increased market speculations of having new adopted tightening stance from the BOE for fighting the inflation which has been surged recently with UK CPI index reaching 3.7% yearly, in the time of facing growth down side risks as we have seen the falling of UK Q4 GDP into the negative territory at -.5% quarterly emerging stagflation risks to face the UK economy capping the MPC from hiking the interest rate in the well required pace to anchor the inflation fearing of accumulating the risks facing the growth tackling the investments which is needed for stimulating growth. The cable could get over 1.62 and god willing, it should face now the resistance at 1.6296 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.

After the investors' risk appetite has improved by the strong release of January ISM Manufacturing index which jumped to 60.8 while the market was waiting for 58.2 from 58.5 in December which shows that the pace of recovery in US is still going well reinforcing the business spending, it get back skeptic by the concerns about the geopolitical concerns about the middle which have grown again by the clashes between the supporters of Mubarak and the protestors against him fueling the worries about the oil supplies from the Arabia rich of oil countries through the Suez channel because of these recent riots in the Egyptian streets which can threats these supplies pushing the oil prices above 100$ per barrel.

The commodities prices are still underpinned by these unstable situation in the middle east as the events in Egypt increased speculations of strong demand from the Egyptian government for resorting stabilities in its markets after as the turmoil caused strong shortages in its markets and it is important at this point to mention that there have been existing worries about the commodities prices from BOJ and the Fed earlier last month when their economic assessments earlier last month.

The single currency is still find difficulty to stand above its recent resisting level versus the greenback at 1.379 which were capping it from reaching 1.4 psychological level while the way down should be met by supporting level at 1.358 then 1.335 and 1.326 and the breaking of it can open the door for 1.309 and then the recent bottom of the pair at 1.287 level where it could rebound from 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 assured by Jan EU CPI which has reached 2.4% y/y well above the 2% target of the ECB 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 recovery signs by new better than expected rising release of EU Jan PMI non-manufacturing index to 55.9 while it was waited to be 55.2 after Jan Manufacturing index which had come at 57.3 from 57.1 in December and these new data have come in line with the recent 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 showing that there is no worrying growth downside risks can cap the ECB from tightening.

God willing, it is still important today to wait for the ECB interest rate decision and the ECB press conference which is expected to show higher concerns about the inflation outlook and from US, we wait for the initial weekly jobless claim to be down to 425k from 453k a weak earlier December factory orders to be up by 1% from.7% in November after falling in October by .7% and also January non-manufacturing index to be 57 from 57.1 in December. We wait also for the Fed chairman Bernenke's speaking.

Kind Regards
FX Market Strategist
Walid Salah El Din