The disappointing release of June US non-farm payroll which has hurt the investors risk appetite strongly last week is still putting pressure on the US indices future and the European stocks in the beginning of this week. S&P 500 could not close above 900 this time and Dow has lost 233 heading lower to complete the third consecutive week of loses since it has started its rebound on the 9th of Last March when it reached this year low at 6469. There is a strong technical pressure on the equities market to continue the declines of the recent 3 weeks this week too. June Non-farm payroll has shown losing of further 467k and an increasing of the unemployment to 9.5% by a long weekend in US because of the independence day. These new loses of the labor market itself can lead to a cautiousness of the consumers' spending which can dampen this current sluggish demand which should bring growth and the waited recovery which looked halting and unreliable to the investors after these data which can not rule out an exacerbating of the current economic situation as the business confidence is still at a very low level and the pace of contraction can increase again and the demand is still weaker than spurring demand for jobs or even growth again. May US ISM manufacturing index improved to 44.8 from 42.8 but it's still well below 50 and By god's will, we are to wait today for June US ISM non-manufacturing index which is expected to be 45.6 from 44 in May.
The Single currency has dived below 1.40 versus the greenback which gets benefits from being a safe haven option to the investors at these times of losing confidence in growth and taking risks. The single currency has got no clear direction from Trichet's comments after the ECB decision to keep the interest rate unchanged at 1%. The central Bank has mentioned in the recent meeting that it will buy covered bonds worth 60 billion Euros with mortgages loans or public loans in the euro area and it has surprised the market last week by adding that it will extend the one year loans which worth about 442 billion euros to the European banks on 1% to afford the required liquidity to move the current economy stagnation and the market was waiting for new clues today from Trichet's comments which came very conservative and as expected repeating the mantra that the current interest rate is appropriate and the current negative inflation rate is likely to be short lived and the gradual recovery is expected to be in the first half of next year and the current situation is not out of the ECB expectations.
The cable has come under pressure since the release of UK GDP Q1 final reading. the cable could reach a new year high at 1.6743 by the release of these growth data which was expected to decline quarterly by 2.1% and yearly by 4.3% and it has come at -2.4% q/q and -4.9% y/y and the pressure continued after the disappointing releases of June US consumers confidence survey and US Labor reports of June last week especially after a technical break out of 1.62 support which could hold several times last month the way down is expected to meet the same support level at 1.62 level and this breaking can lead to a test of the psychological level at 1.6 and the breaking of it can expose the cable recent main low at 1.58 to be tested again as a support.
The Japanese yen was supported by the frustrating jobs figure of June in US as it increases the carry trades unwinding in the favor of the low yielding currencies such as the greenback and the Japanese yen which has an interest rate at just .1%. Nikkei 225 has followed the US stocks market as expected in the beginning of this week too losing further 135 to close at 9680 negatively impacted by the strong yen which can hurt the Japanese exports at this time of sluggish global demand which effected negatively on the Japanese Tankan survey of the big manufacturing of the second quarter which came last week at -9.4% and it was expected to be 6.9% putting further pressure on the Japanese stocks which could not even get out of the negative impact of the disappointing release of June US consumers confidence survey which can hurt the demand for the Japanese exports.
The gold which was struggling to stand above 940$ has suffered recently from the easing of oil and commodities prices and the correction of the stocks market in the recent 3 weeks which underpinned the greenback and downplayed the inflation upside risks which came tamed negatively impacted by the recessionary pressure in May. The gold came under strong pressure after sliding from 960 to be under further technical pressure to drove it down below 942.8$ to reach a new low at 912.8 after its previous low at 925.88 before rebounding to 948 but it could not even hold above 940 to slide again.
Best wishes
FX Consultant Walid Salah El Din E-Mail: snipped-for-privacy@fx-recommends.com