As we have mentioned yesterday, the equity markets have faced profit taken waves after three days of rises on Obama's stimulating plan optimism. The investors have reevaluated the current situation and how far we are off a considerable change of the dovish market sentiment for carrying assets again taking risk on the current sluggish growth. As this plan is expected to be very conservative in spending waiting for a crucial risks for bailing out and this can not effect positively on the market sentiment as its actual impact to stimulate the economic growth may not be enough as directing this money defending for the existing of some losers firms can not be enough and it is not the question but the question is how can they smooth the way for growth confidence in the US economy stimulating the demand leading again for expansion after the crisis to not have further deteriorations not for just bailing out key certain firms to change the sentiment and getting back confidence!?
As we have expected, The Japanese yen could get benefits of the carry trade unwinding waves outpacing the greenback versus the European currencies in spite of the market turning to the US treasuries and the greenback on the risk aversion sentiment as the market can see that the problem is not over and the these recent optimism is still a chance to sell and this sentiment is not out of the market yet especially as the weak economic performance data are still persisting in the same pace of declines with realized staving off. By the end of last week we have had further more than expected lost jobs in US in Jan to reach 598k and increasing of the final reading revision of December to 577k and in spite of that it is a lagged indicator but it effect negatively on the consuming sentiment and investing sentiment as well as it is not over at this point. In this same time, The US ISM manufacturing index is still sinking in the contracting territory below 50 at 35.6 and even the US Jan ISM non-manufacturing index which has improved to 44.2 in Jan is still contracting.
The single currency is still finding strong difficulty to surpass 1.31 or even to stand above 1.3 on this current dovish market sentiment. The single currency is expected to have another .5% cut in the next ECB meeting in March to stimulate the current struggling growth in the Euro zone. In this same time, the greenback interest rate is nearly at its bottom which can form a dovish interest rate outlook differential pressure on the single currency versus the greenback trading lower than 1.29 right now.
We wait later today for the release of US trade balance deficit and it is expected to narrow on the recession and deflation impact in spite of the appreciation of the greenback recently on the credit crisis. This figure is expected to be -37b in December from 40.44b in November
Best wishes
FX Consultant Walid Salah El Din E-Mail: snipped-for-privacy@fx-recommends.com