Again the British pound came under the pressure of the falling of the UK retail sales which came below the market expectation of 3% y/y and 1.1% m/m in December at just 2.1% and .3% m/m after falling in November by .3%.Which was the reason of breaking 1.61 too in December after that weak release which shows the sluggish pace of the consuming spending in UK which can have a negative impact on the final figure of UK GDP of Q4 which is cautiously waited as the market is curiously waiting for the release of these Q4 growth data which can effect on the directions of the forex market directions by God's will.
As it is important to the British pound to see the UK economy getting out from the recession which has persisted in the third quarter in the fourth which was the only economy in recession in the western Europe in the third quarter of last year as the UK government has pledged earlier while the market is waiting for a stronger recovery in EU and US as the ISM and PMI data of both of the manufacturing and services sectors have improved in the recent months well above 50 with the improving which is running gradually in the US labor market after surprising rising of last November non-farm payroll by 4k jobs after first revision showing losing by just 11k before losing again 85k jobs in December which showing that the labor market in US is still trying to form a bottom following the recovery which is still trying to gain momentum too.
So, it is important this week to watch the release of US Q4 GDP advanced reading which is waited to be released next Friday to be 4.6% from 2.2% y/y showing the impact of the stabilization of the US financial sector currently after mixed earning reports released from the banking sector in the recent days of the fourth quarter of last year had tended to show restoring of this important sector which caused the crisis.
But in spite of that, these reports have not had the positive impact on the equities market which have had after the third quarter which increased the investors' worries about the current consolidation in the equities markets after the rally which has started from the 9th of last march when Dow was trading below 6600 reaching 10729 in a constant way this month without a strong correction can test the investors' patience and we have seen by the end of last week the stocks markets falling beginning with a risk aversion sentiment containing the market even before these waited growth data supported by signals from PBOC to stave off the lending this month especially after the strong first release of the Chinese Q4 GDP by 10.7% y/y with inflation beating the market expectations of 1.7% coming at 1.9% showing a high paid price of this growth currently which effect negatively on the value of the Yuan and the consumers' spending outlook at this high level of utilization in this economy which has grown by just 8.9% in the third quarter and it looks in need for cooling down the capital spending at this point which pushed the greenback up across the broad opening the door for a correction in the equities markets.
The single currency is still struggling after the new exacerbating which has come this time from the budget deficit of Portugal which has ascended massively 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 triggered worries even about the equivalence of the Euro zone countries financial situations treatment which was hurting to the single currency in that time but now and after the financial situation has aggravated because of the credit crisis widening these deficits worries are supposed to come from several European countries with the current great ample of liquidities which were needed to be pushed by the ECB after cutting the interest rate massively to just 1% to spur investment saving the economy from falling in a long recession lowering the cost of borrowing and taking accommodative easing actions coming accompanied with governmental rescue spending plans for moving up the capital spending and the investors' trust in the growth but in the same time increasing 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 in this defensive side with the market sentiment focusing on this budget deficit outlook with the current expected low growth rates which are expected to come out from the Euro zone too soon as what has been repeated by Jean Cluade Trichet in his press conference after the recent ECB meeting when it decided to hold the interest rate unchanged at 1% underpinned the selling of the single currency across the broad.
The market has seen in 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 too.
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.
Walid Salah El Din