The Easing of tension in Egypt could bring back confidence in risky assets putting weights on the greenback. The Egyptian street has found in changing the leaders of the national democratic ruling party an open door for discussions with all parties in Egypt even the Muslim brothers lightening the pressure on Mubarak from US and Europe to quit immediately in a fast way which can put Egypt in mysterious ways. It looks currently that he is the best to reform currently as he is leaving and doing this reforming job for modifying the constitution of the presidency terms fulfilling the demands of change in the rest time of his leading as he does not look for further time in power.

Dow has made a new high today since the credit crisis at 12188 pushed up by this political improving in Egypt which helped the business sentiment and the equities markets in EU too to add more gains covering the loss of this credit crisis which reached its bottom on 9 March 2009 after aggressive falling of the assets prices has been triggered by the collapse mortgage market in US threating the creditability of its financial sector with the bankruptcy of Lehman brothers.

The single currency has been struggling after the falling of Germany factory orders by 3.4% monthly in December from gaining 5.4% in November while the market was waiting for shrinking by 1.4% but it could rebound with the recovery of the investors' risk appetite at 1.3505 to traded currently above 1.36 versus the greenback which is still finding demand by the rising of its treasuries yields and asking for borrowing while the economy is looking better in the recent months despite the struggling of it labor market as we have seen by the end of last week the release of US Jan non-farm payroll adding just 36k while the market was waiting for 150k jobs to be added with declining of the unemployment rate to 9% from 9.4% while the market was waiting for rising to 9.6% but since 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 the confidence in the US economy is getting momentum adding to the gains of its dividends driving the treasuries yields up reinforcing the business spending trust which has been tempered recently 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 rates in US this year can make the investing in the greenback rewarding with tame inflation pressure in US 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 just as BOJ which is fighting deflation has done until now betting on its inability to move up the inflation over the long term in US.

Generally, 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 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 and so the single currency could not have the ability to fight for having a place above 1.379 versus the greenback breaking below 1.358 and it is now trading above 1.36 after finding support just above 1.35 psychological level but the breaking of this level can open the way for 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 last week, The cable eased 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 but 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, so it looks that the only available option to the BOE currently is to let the pound appreciate for containing the inflation helping the market trust in it.

Kind Regards

FX Market Strategist
Walid Salah El Din