After sending signals to the banks in China to stave off lending this month by the PBOC, the market has found in today release of the Chinese growth of the fourth quarter by 10.7% y/y with inflation beating the market expectations of 1.7% coming at 1.9% a high price of this growth of this high operating economy which has grown by just 8.9% in the third quarter which dampened the capital spending outlook at this point pushing the greenback up across the broad.

The single currency has continued its owes this week after a new exacerbating from the budget deficit of Portugal this time which has risen to 8.6% to its growth rate while the European treaty calls for what's below 3%. In the early years of this decade, we have seen the penetration of this ratio of the Maastricht treaty by Germany which was a threat calling for worries even about the equivalence of the Euro zone countries financial situations treaty which was hurting the single currency but now and after the financial situation has aggravated because of the credit crisis, these deficits worries are supposed to come from several European countries with the current great ample of liquidities pushed by the ECB which cut the interest rate massively to spur investment saving the economy from falling in recession for a long time lowering the cost of borrowing and this accommodative actions have come was accompanied with governmental rescue spending plans for moving up the capital spending and the growth as well which can increase the worries about the deficit in EU especially with low level of growth resulted from these stimulating plans in the beginning of this nascent recovery.

God willing, the single currency can continue existing in the defensive side with the market sentiment focusing on this budget deficit outlook with the current expected low growth rates as what has been repeated by Jean Cluade Trichet in his press conference after the ECB decision to hold the interest rate unchanged last Thursday at 1% underpinned the selling of the single currency across the broad as it has been read from his comments that there may be no change of the ECB policy this year especially as it sees that the inflation outlook is still mild in the Euro area.

The single currency is expected to struggle to stand above 1.4 psychological level after the triggered selling pressure from breaking 1.425 support versus the greenback and the breaking of this new main support level opening the door for testing 1.38/1.375 supporting area which  the single currency started last rally to get above 1.51 by the end of last November reaching 1.5144 whereas it has started the falling again before finding this mentioned support at 1.425 which has broken this week with failing last week to stand above 1.45 again.


Best wishes


FX Consultant

Walid Salah El Din