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6/5/2008 − the current market sentiment

Tue, May 6 2008, 07:14 GMT
by Walid Salah El Din

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In spite of Trichet's comments yesterday that The Global Inflation Risks Are Significant, There is no time for complacency for central banks in any respect, There are significant upward risks to inflation globally, and central banks must do their utmost to anchor people's inflation expectations, there was no change in the currency market which is fully priced on these  inflation upside risks currently which is need to be contained in a time of sluggish growth.

The single currency is still struggling to stand above 1.55 again after the drop which triggered by a dovish market sentiment of a slower growth because of  the high single currency value which tackle the EU exports competitivity and the slowing down of the US demand and its effect on the global demand following the crediting problem which triggered by the housing slump which is still on. April EU PMI manufacturing index came at 50.7 lower than the 52 of March following a disappointing IFO business climate figure of April which has fallen from 104.3 in March to 102.4 in April and increasing the possibility of contracting numbers below 50 next months. We wait today for the release of the PMI service data of April which is forecasted to be 51.8 from 51.6 in March.

The US ISM non-manufacturing index was the main indicator yesterday and the market was expecting 49.5 but it has come at 52 well above 50 with price paid index at 72.8 showing the inflation pressure in this sector which had an expansion of all its parts in April. The employment index came too a 50.8. there was a short lived of these data as the USD has reacted positively directly after the release of US non-manufacturing index which is less weighted than the ISM manufacturing index to the forex market. The USD recently was supported by increased possibility that the worst has come to the financial market because of the credit crunch. The market has seen less care of the growth than before after the fed cut by just .25% earlier last week which signaled high uncertainty about the inflation currently. The jobs labor report of April has helped the greenback to come over 105 versus the Japanese yen before retreating lower.

The market is generally waiting for next Thursday BOE and ECB meeting and both are expected to hold the interest rate unchanged but we want to know more about the current ECB evaluation of the inflation upside risks and growth down side risk in EU after these aforementioned weak growth data at high the current high inflation rates.

Best wishes

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FX Consultant

Walid Salah El Din

E-Mail: mail@fx-recommends.com

Published on  Tue, May 6 2008, 07:15 GMT