We can surely say that a new week is upon us now with the mixed sentiment still prevailing! From the bearishness in the early Asian session to the reversal in the European session as investors struggle to find the underlying sentiment in the market!
We are battered with debt woes, geopolitical pressures, fragile recovery, and inflationary pressures and all the facts combined where seasoned with the hawkish sentiment creeping stronger in the market! With the ongoing unrest in Libya and fears of the instability spreading to other Middle East oil nations, crude oil is not steady above the three-digit market and hovers now around $106 per barrel.
Oil is the key component in pushing price pressures higher especially for nations already struggling to contain rising inflationary pressures, and with the hawkish bias explicitly seen from ECB's Trichet the markets' nerve grew stronger in expecting other bankers to follow suit, all supporting high yielders over the dollar!
With a skeptic scrutinizing eye we simply can say the underlying situation has not much changed, it's a matter of the ongoing revelation on the political from which is pressuring commodities higher, where if we assess growth, the recovery is ongoing and at the same fragile pace and with commodities on this rollercoaster actually we will see the market shifting bearish on the recovery in no time!
We can see the US for instance providing more stable signals of the recovery and the latest was the infamous jobs report which surprisingly was inbound with the optimistic options! Nevertheless, the dollar was still not protected from the bearishness haunting it across the board as the focus is on inflation and the Feds are surely behind on that trail compared to their peers!
The recovery and the geopolitical pressures for now did not salvage the dollar till now from the bears with greenback still biased south with the start of the week. The dollar index traded south today recording the early highs at 76.49 and sliding to the lows of 76.11 and currently hovering around those areas. I can surely see the dollar's southern trip reaching home as the reversal is in the making and the recovery is bound to start sooner than later and personally I think it takes a strong shift in the market sentiment to pessimism once more which will revive the dollar's stance as thee safe haven!
Surely the dollar was weighed strongly lower by the euro, which makes up the lion's share in the dollar index. The common European currency offset the downside pressures and the reminder of the underlying debt woes with Moody's new downgrade for Greece's rating to B1 from Ba1. Moody's said in a statement The rating agency believes that the likelihood of a default or distressed exchange has risen since its last downgrade of the Greek government debt rating in June 2010, where they raised doubts over the nation's ability to implement the budget cuts demanded as part of the conditions for the 110 billion euro bailout.
With the focus on the hawkish ECB the lucrative higher yield is now the winning card in the market and the euro still has upside targets to reach with the bullishness eyed for this week. The pair reversed early losses from the lows recorded at 1.3953 to currently hover around highs recorded at 1.4035. The upside wave remains valid this week with steady trading above 1.3860.
For sterling, the same scenario applies, where the ECB provided the market with the needed support to turn more hawkish on the BoE with the rate decision awaited this Thursday, though the anticipation lingers at least until the minutes, which most likely we predict will buy again more time till the May Inflation Report with the new projections to help ease the widening gap among MPC members.
Sterling benefited from the hawkish occupied sentiment and the weak dollar and reversed higher to resume the bullishness. The pair reversed from early lows around 1.6238 and currently hovering around 1.6318 slightly below highs recorded at 1.6340.
With the lack of major fundamentals today the focus remained on the general underlying development, where investors for now are riding the speculative intuitive sentiment and focusing on the hawkishness instead of the rising downside risk to growth!