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2/5/2008 − The Current Market Sentiment

Fri, May 2 2008, 07:05 GMT
by Walid Salah El Din

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the greenback has got support by an increased possibility that the worst has come to the financial market because of the credit crunch which triggered by the slump of the housing market and sub-prime mortgage bad loans. The greenback which has had a cut by just .25% earlier this week giving the market the messages that there are less fed's worries about the growth than before. Yes, it has left the door opened for further cuts but there can be a hold and this was not priced in the market before reducing the massive USD selling. This current market sentiment lighten the weights on the greenback and decreased the pessimism with the first by fed's cut by .25% and the door is open now for a pause waiting new data. After we have had April Chicago PMI manufacturing has come at 48.3 and the market was expecting it to be lower at 47.5, the ISM manufacturing number of April came as the same of March at 48.6 and the market was expecting a decline to 48.

The core PCE price index has gone up by .2% not by just .1% as expected to signal high inflation pressure on the fed to stop easing. the yearly core figure yesterday came 2.2% higher than the market expectation of 2.1% in the first quarter of the year and also the consumption get better for the first time increasing .4% which account for more than 2/3 of the US economy. The market has started to cheer up after the release of the US GDP advanced reading which has shown a rise by .6% above the market expectations of just .2%. The future outlook has become better than after these data. Today we wait for the US labor report which is expected to have a rise of the US unemployment to 5.2% in April from 5.1% in March and the non-farm payroll is expected to lose another 80k. The release of April US ADP employment has surprised the market this week by adding 10k and the market was  waiting for a negative number by 60k. The data could make optimism by the release of April US labor report today. The trading is expected to be light by the release of the labor data.

The gold has found difficulties as the current optimistic greenback sentiment. There can be a fed tending of holding the interest rate right now in respect of the current high inflation uncertainty amid the high oil and commodities prices more than before. The market is waiting for the release of the EU PMI manufacturing data which can be closer to the contracting territory if not in it weighing on the single currency from another side. The EU PMI flash indicator has shown a slow down to 50.8 last week to know how far EU is negatively impacted by the US slow down and the strong EURO. Technically the break of 1.551 can open the door for 1.5340 again making the dollar selling out of stream currently triggering stop loses versus the single currency too as what's happened to the gold after the break of 861 with inability to break above 882 again versus the greenback forming a new lower high after the one in 895, 905, 927 and the one at 955.

Best wishes

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FX Consultant

Walid Salah El Din

E-Mail: mail@fx-recommends.com

Published on  Fri, May 2 2008, 07:06 GMT