The greenback could harvest the inherited gloomy growth outlook picture in EU and UK from US. The market is waiting this week for EU PMI manufacturing and service data and it is expected of be slightly fewer than 50 again. The IFO data have shown that the germane business climate is struggling last week and this mistrust sentiment of the single currency could not help it to stand above 1.575 versus the greenback forming another lower high at 1.575 after 1.5935 and 1.6023 putting technical downside pressure on the pair. It looks that another ECB hike is getting off the table and it can pay much attention to the growth downside risks. Jean Cluade Trichet has said it clearly after the recent ECB meeting when it has hiked by .25% in the face of the inflation to settle price stability over the medium term when the oil prices were well above 140$ by referring to the downside risks currently and the sluggish growth of the second quarter after good data in the first quarter which can tackle further tightening actions in appreciation of the growth down side risk which triggered a profit taken wave after the hike and now it is getting better in US and in my view the ECB can not go tighter than that before a realized improvement in US if it is not a beginning of tightening back again in US which can give support to the greenback versus the single currency. We wait later this week for the release of June HICP which is expected to come higher again to 4.2% y/y from 4% in May very well above the ECB target which is 2% yearly but the dragging of oil and commodities prices can make the market expecting these rates to come lower anyway.
Yesterday release of the new low records of the UK mortgage approvals of June at just 36k plus the -36 of the UK retail sales CBI could give enough pressure on the cable to sink below 1.991 reducing the expectation of a new MPC split decision as the serious needs of consuming currently or even if there is a vote for hiking in the face of inflation, it is hard to have a majority to hike interest rate amid the current decline of the commodities and oil prices which trading for the second week below 130$ a barrel.
From another side, the greenback and the US stock market could capitalize the decline of the commodities and oil prices recently making rally after yesterday Merrill lynch write down bad news. It is right that the housing sector outlook is still blur but the equity market has managed to gain trust from this decline of oil prices and the US financial quarterly earning reports which have given the market the sentiment that the credit crisis is easing and there can be no worse than what has been done because of the housing market slump after last summer US sub-prime mortgages bad loans problems which dragged the home prices down and caused worries about growth and an ease of the interest rate to 2% from 5.25%. In spite of the recent Minneapolis Fed President Stern saying that the worst has yet to pass and the credit crunch impact can continue into next year.
We wait later today for the release of US June ADP which is expected to be -55 from -79 in May. The figure comes by the release of US Labor report of June which can give the investors an indication of the waited jobs data by the end of the week.
Best wishes
FX Consultant Walid Salah El Din E-Mail: snipped-for-privacy@fx-recommends.com