The Release of US Jan non-farm payroll has shocked the market by adding just 36k while the market was waiting for 150k jobs to be added but the declining of the unemployment rate to 9% from 9.4% while the market was waiting for rising to 9.6% could light the negative impact of the weak non-farm payroll which has shown also revising up of December added number to 121k from 103k. The greenback came under pressure directly after the data but quickly it has gained across the broad on the market consideration of the falling of the unemployment rate which has happened in January. The US labor have shown the instability of the labor market which is still struggling lagged behind the economic recovery which is still find difficulties in producing jobs.
The single currency is still under pressure because of Trichet's comments which have referred to moderate inflation upside risks over the long term after the ECB decision to keep the interest rate unchanged to reducing the current market discounting of having a close interest rate hike for fighting the inflation after Jan EU CPI which has reached 2.4% y/y well above the 2% target of the ECB. After The single currency could not have the ability to stand above 1.379 versus the greenback, it has eased back to 1.358 and the breaking of this level can lead to 1.335 and 1.326 and the falling 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 fueled by markets cheeriness of successful bonds auctions in Portugal , Spain and Italy underpinned by The ECB members appreciation of building inflation pressure in the Euro zone.
After the cable had got a strong push from 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 to jump above 1.625 reaching 1.6275, it came back under pressure from strong greenback gains across the broad with the current worries about the middle east geopolitical situation coming back containing the market sentiment asking for a safe haven stance supporting the gold as well which is trading currently above 1350$ per ounce but in the same time, this does not object that the British pound is still taking advantage from the 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 after the recent MPC meeting minutes which have shown stronger than expected appreciation of the inflation upside risks giving another vote to sentence who was calling for hiking the interest rate by .25 from the MPC voting member Mr. Martin Weale to be 6 to 2 to 1 decision of keeping the interest rate unchanged at .5% and its buying bonds plan unchanged at 200b Stg instead of 7 to 1 to 1 in their earlier meeting as Possen is still favoring increasing of the buying bonds plan but in the same time, the market is still appreciation growth downside risk which faces the UK economy dragging UK Q4 GDP into the negative territory at -.5% quarterly emerging stagflation risks 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 is trading now below 1.62 reaching 1.6275 and inability to get over the formed resistance 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.
The investors' risk appetite has hardly improved this week 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 but it is still skeptic by the concerns about the geopolitical concerns about the middle which have grown again by the tension 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 which brought back the oil prices around 100$ a barrel
FX Market Strategist
Walid Salah El Din