The Japanese yen was under pressure across the broad on the surprising resignation of Japan's Finance Minister on accusation of being drunk during the G7 meeting but quickly it could get back some of its loses on the market focusing on the expectations of further loses of the equity markets and losing of the risk apatite and confidence in the global economic growth as there is no clear sign yet of even a staving of the current recession and deflation forces which faces US and the global economy. The supply is still taking the lead and the demand can not spur growth until now and trust in investing and hiring and the rates of consuming are going down in a conservative way resulted from the credit crisis which can clear the way for further slumps and devaluation of the assets markets generally not just the equity market.
The equity markets today have faced strong loses on doubts about the recent approved simulation plan of Obama effect to stimulate the wanted demand to restabilize the economy. The pessimism controlled the markets giving a feeling to the investors that the turning back point may not be close and it can be far than what was expected. The Japanese yen, the greenback, the gold and the US treasuries were underpinned across the broad on this current market sentiment persisting across the broad in different levels. The gold was at nearly 7 months high at 973 and Dow was sinking to penetrate its major support level which has been made last year at 7550. The index was technically down after making its first long dark day last week closing well below 8000 this year. These bearish signs reinforced the way down. The greenback could get benefits from being a safe as haven and from the attractiveness of its treasuries in these times of increased downside risks of growth.
The greenback could drag the single currency lower well below 1.26 in this same time of increased banking and financial loses on the credit crisis impact on the European eastern economies.
We have mentioned these during this simulation plan approving discussions as the investors should reevaluate 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!? In the beginning of this week, we have had further lost jobs in US in Jan reaching 598k and increasing of the final reading revision of December to 577k and in spite of that it is a lagged indicator but it effects 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.
Best wishes
FX Consultant Walid Salah El Din E-Mail: snipped-for-privacy@fx-recommends.com