In spite of the strong opening of the single currency this week on a reached deal for rescue Greece by 80 Billion euros from the other European countries and 30 Billion euros from the IMF in the coming 3 years during the weekend, it could not hold its gains on worries about the austerity measures effect and the riots impact against these measures in Greece street.
From another side, Greece has announced that it may have a shrinking of its GDP by 4% this year which shows the strong need for having the interest rate in the Euro zone at its historical low at 1% if not adding more easing steps for stimulating the struggling economic growth in the Euro zone which is still coming very lagged behind US.
The single currency has fallen again below 1.32 during the US session although the stocks gains and the Dow ability to close above 11150 again compensating last Friday's loses on the strong ISM manufacturing index release of April which came at the strongest expansion pace since 2004 at 60.4. You know the reading above 50 means expansion of the sector and below it meaning a contraction of it.
The US stocks have slumped last week with the market focusing on the debt crisis consequences in Europe and the investors have lost some of their trust in taking risk at the current uncertainty preferring to take profits after more than a year of continuous rising in the equities market since the 9th of March 2009 when Dow got down below 6650 pushing the greenback up across the broad and also the gold as a better safe haven option with the current global missing trust in the bonds attractiveness and increased worries about its rewarding as a fixed income option to the investors who are looking for a saving option of their money value and that's rather than the increasing of the commodities and energy prices which are still pushed up by the current low accommodative levels of interest rate across the broad which is lowering the cost of borrowing from a side and the value of the currency from another side. The gold could get above 1180$ today and the next resistance is expected to be at 1200$ psychological level and then its recorded high on the third of December 2009 at 1226$. The gold could add to its gains on increased speculation for having the interest rate and the easing steps of the ECB for a longer extended period of time than expected which can be faced by inflation upside risks with the current energy prices rising at the current exceptional very low level of interest rate in US and EU in the same time even the Fed could not change it or refer to a close end of keeping it between 0% and .25% with the current strong growth rates in US keeping their mantra of leaving the interest rates at exceptionally low levels for an extended period of time last week referring just to a gradual improving in the labor market. The Fed looked worried about the current growth rates stability until now as losing these rates can brought them back to the losing trust spiral and the possibility of facing a double dip recession and paying further costs after the improving of the US economy they have had but to how long they can keep it. We have seen today the oil ability to keep its gains above 85$ a barrel and the price paid index in the manufacturing sector of April rising above 75 at 78 too which shows a strong inflation pressure inside this sector which can have a negative impact on the demand later eroding their accommodative easing policy effect.
God Willing, it is important this week to wait for the ECB interest rate decision and the press conference of Trichet after it and from US, we wait for US factory orders of March to be up by .3% from .6% in February and ADP employment of April to be 25k after a shocking loss by -23k in March and by the end of the week for the US non-farm payroll of April which is expected to add another 175k after adding 162k in March.
Walid Salah El Din