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18/4/2008 − the current market sentiment

Fri, Apr 18 2008, 06:53 GMT
by Walid Salah El Din

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The financial minister of Luxemburg Jean-Claude Juncker 's comments that  the financial markets misunderstood the Group of Seven's concerns about the volatility of major currencies could contain the market sentiment again pushing the greenback higher across the broad. The greenback was already at a potential support from the G7 talking since the beginning of the week and it could cap the single currency lower than 1.60 fearing of what can be a joint action against what's called volatility by the G7. It's a normal thing to have such a financial criticism of the appreciated Euro. It is not out of the market pricing but it has brought back the G7 comments insight. Especially as the market wants a clearer message from the central banks that there can be a joint intervention than just this movement is not desirable for growth and what's well-known to the market. Anyway, it was like a rock in the single currency road ahead of a key psychological resistance and it has got the market acceptance to take some profits waiting to see.

The single currency is still standing now lower than its all times high at 1.5983 versus the greenback after EU Mar HICP which came above the market expectation of just 3.3% to 3.6% y/y which is the high of 16 year and 1% m/m. the core HICP came also higher at 2.7% y/y and .9% m/m and the market was expecting the core to be 2.4% y/y and .6%. In this same time US Mar CPI came lower than the expectations of .4% to be just .3% m/m and the core figure came at expected 2.4% from 2.3% in Feb.

The data have shown increased  inflation upside risks outlook in the Eurozone underpinning the current ECB stance of holding interest rate unchanged for fighting inflation in spite of the needs of cutting for spurring growth while the FED is still going on cutting interest rate as the market is waiting for not less than another .5% cut from its meeting by the end of this month weakening  the greenback versus the EUR as the current US  interest rate differential outlook comparing to the single currency.

The gold has got the waited boost from the higher than expected inflation rates in EU and also the current records highs of oil prices which is underpinned by decreases of the US inventories for the second consecutive week as it has slumped to 2.3m and the market was expecting an increase by 1.8m after the previous weekly decline by 3.2m. The gold reached 948.3 after the US EIA oil stocks data and it is now hovering above 940$ just shy of the next resistance where as the lower high at 955$. The lowered expected cost of the greenback can add to the gold as a reserve in this stagnation growth times and in indirect way cause a potential inflation upside risks which is hard to be avoided at these current energy and commodities prices.

The data continued to come weaker from US. We have US April Philadelphia Fed Business Survey which is expected to be -15 from -17.4 in March actually lower at -24.9 and there is no key data today from US but the release of Citigroup earning report of the first quarter after Merrill Lynch third consecutive quarter of loses and better than expected results of JB Morgan chase making a mixed atmosphere by the report as the market is waiting to see whether there is a close end of these loses of the financial market or not. Until now, there is no supporting data from the housing market which was the cause of these current crediting problems. This week we have had a massive decline of US Mar building permits to 927k from 984k and lower than the market expectation of just 980k also Mar housing starts came lower than 1m to be just .947m and the market was just expected a decline to 1.02m from 1.065m in Feb. the data underpin the prospect that the bottom has not come yet adding more pressure on the greenback.

Best wishes

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FX Consultant

Walid Salah El Din

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Published on  Fri, Apr 18 2008, 06:55 GMT