The US labor report of Feb has shown further strong deteriorations in the labor market. The unemployment has reached 8.1% in Feb up from
7.6% in Jan and the non farm payroll has lost further 651k in Feb which can effect negatively on the consuming pace in US which is already struggling under the pressure of the recession and the negative business sentiment. As we have seen Feb consuming sentiment of Michigan university final reading decline to 56.3 and also the US consuming Confidence survey of the same month has reached 25. The greenback was under pressure just after these pessimistic data release but it could creep up again later.The gold could get above 940$ after the data but with the US dollar gaining, the gold came under pressure to retest 930$ but it could close above it at 938$. The persisting of the credit crisis negative impacts of the global economy could support the gold above 900$ recently and there can be further gains ahead if this negative market sentiment could hold further which can direct the investors to take a safe haven positions. The next resistance should be 960$ and on the break of it, the main resistance should be at the 1000$ psychological level whereas the gold always faces profit taken waves and the next support right now is at 920$ then 900$ then 888$ and the main support is at 850$ level.
By God's Will, The dovish market sentiment is still supporting the greenback and the US treasuries as a safe haven. There is no realized improvement or change to end this sentiment which underpins the downtrends of the equities markets from another side. We have last week the GM suffering and its exposure to the bankruptcy risks as the current weak demand and financial situation and also the unsustainable loses of AIG of the last quarter of 2008 which reached 61b$. We have seen also the declines of the banking sector stocks which are still finding further rooms to fall in spite of its recent prolonged massive declines which has not stopped since august 2007 leading a stock like Citigroup to reach 1.5$! Increasing the stakes of the governments in the banking sector has become the main left way by the nationalizing and the failing of this surely should lead to the bankruptcy and at any case the picture of this banking sector will change in the coming years if it is in the coming months. The nationalization effects negatively on the investors and the stock holders which adds to the woes of the prices which can not find a solid floor until now and the recessionary forces are putting much pressure on the global economy which makes the outlook of these banks very dovish to make a close achievement or change for turning back to make profits as all sectors are in contraction and the supply is still taking the lead in a strong pace as we have seen in the numbers of the ISM manufacturing data of US and the non-manufacturing data in the recent months which are not far from the same contracting numbers of EU and UK PMI data of the same period after the beginning of the credit crisis which makes the way of a leading demand to put the global economy in the right way again very difficult and asking for a lot of reforms which can change many of what we have seen in the financial markets in the recent year by the crisis.
Last week, we have seen the BOE cutting interest rate to the all times low at .5% by .5% referring to its readiness to buy governmental gilts for further adding liquidity increasing the supplied money to the struggling UK economy which can put further weights on the British the British pound and in this same time, The government is doing the same as US taking higher stakes in Lloyds facing the same miserable results, if this policy could not help. This quantitive easing policies can effect negatively on the currencies buying power generally underpinning the gold. The currencies which is tied to the US dollar with no solid ground can suffer in the crisis more than this countries which have liquidity based assets like the oil exporters countries which can come out of this crisis much more stronger on their strong liquidity position. It is something like the rising of the oil prices after the end of the Iraqi war as the accommodative monetary stance after it.
Best wishes
FX Consultant Walid Salah El Din E-Mail: snipped-for-privacy@fx-recommends.com