The Current Market Sentiment

By IBTimes Staff Reporter | February 18 2010 3:50 PM

After the market has been possessed by the rescue plans and the liquidity in the recent 2 years it's now focusing on the cost of these rescue plans which is accumulating in these countries debts. We have seen today UK posting its first net borrowing deficit moth since the beginning of 1993 which can bring its budget deficit ratio to GDP above 12% as the public sector has borrowed in Jan 4.3 B Stg while the market was waiting for covering 2.8 B Stg of this debt which affected negative on the British pound which looked in a better market appreciation of its situation and having trust in its gilts market than the other EU member which suffering consolidation in its debt despite shrinking by 4.7% in 2009 and growing by just .1% in the last quarter and from the other side of the Atlantic Obama is trying to impose taxes on the banks which had the rescue plans funds and the governmental underpinning in the crisis which is looking easing in US than Europe which is still suffering from its low levels of growth until now which pit pressure on the single currency and the British pound versus the greenback in the recent months.

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The Greek debt could contain the current market sentiment effecting negatively on the single currency which dipped below 1.36 again this week after failing to get back above 1.38 versus the greenback on increased worries about the ability of Greek to meet the other members trust in its ability to sustain its debt at the current low levels of growth in the Euro zone bringing back its deficit to the growth ratio below 3% which is not looking coming soon at the current struggling growth rates which resulted from the credit crisis as even the ECB could not stop any of its accommodative easing actions worrying about the current nascent recovery until now which can put more pressure on the reforming plans in Greece from another side.

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The forex market has got that there is no bailing out plans currently from the other EU member after the EU summit last Thursday and the EU fin ministers meeting in the beginning of this week but just the political underpinning waiting for signs from Greece at least in the coming 30 days that there are effective efforts from its side can sustain its debt position but the most worrying thing is still that this same problem is threating other EU members like Spain and Portugal with no clear mechanism to the market for solving such economic situation in the case of exacerbation inside the Euro zone which can effect negatively on the single currency back securities holding underpinning the risk aversion sentiment and the greenback from another side.

The single currency could close hardly last week above 1.36 last Friday after making a new lower low at 1.353 than what it has made after breaking 1.382 at 1.3585 but its failed again to break above 1.38 yesterday and now the next support is at 1.343 which has been the formed bottom of last May and this can be followed by emerging support at 1.29 whereas the pair higher low of its rally reaching 1.513 in the beginning of last December while the main resistance is existing right now just above 1.40 psychological level when it failed to break above 1.404 earlier, the pair can find difficulty to get above 1.482 after failing last week to make it which could add momentum to the currency downward trend.

Best wishes

FX Consultant

Walid Salah El Din