The new week has started in a quit way after the release of US Jan non-farm payroll has shocked the market by the end of last week 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% which could light the negative impact of the weak non-farm payroll which has contained revising up of December added number to 121k from 103k.
The greenback came under pressure directly after these mixed data but quickly it has gained across the broad on the market greater consideration of the falling of the unemployment rate in January but generally the report could not change the current market sentiment towards the US labor market which is still looking struggling lagged behind the economic recovery which is still finding difficulties in producing jobs.
The investors' risk appetite has improved last 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 situation in the middle east worrying about the oil supplies from the Arabian rich countries of oil through the Suez channel after the tensions have extended into Egypt brining back the oil prices above 100$ a barrel supporting the gold as a safe haven stance of the money value versus the higher inflation outlook to rebound from 1306$ trading currently around 1350$ after it was under pressure because of the optimism of better growth rate in US this year can increase the calls for the greenback and the business spending rewarding with tame inflation pressure in US until now helping the Fed to keep its easing borrowing plans unchanged as it has done by the end of last month giving just reference to the rising of the commodities prices as BOJ which is fighting deflation has done earlier.
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 it is now trading above it and the breaking of this level can lead to testing 1.335 then 1.326 and the falling of this level too 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 leading the investors to buy back the greenback squaring their risky positions looking for a safer stance 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 after reaching 1.6275 and easing back from it unable to reach 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.
FX Market Strategist
Walid Salah El Din