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22/5/2008 − The Current Market Sentiment

Thu, May 22 2008, 14:31 GMT
by Walid Salah El Din

FX Recommends

The British pound has found support from a lower than expected decline of the UK retail sales of April by just .2% monthly and the market was expecting a decline by .5%

While the single currency was under strong pressure today as the weak March EU industrial orders which declined by 2.5% and the market was expecting increasing by 4.7% after Feb rise by 9.9%. The data have undermined the single currency after the unexpected rise of the germane ZEW current conditions index to 38.6 in May from 33.2 in April. May germane ZEW has declined slightly to -41.7 from -40.7 in April, it has been boosted today on the up beating IFO germane business climate which surged to 103.5 in May from  a decline in April to 102. the current conditions index has risen to 110.1 from 108 and the IFO expectations index reached 97.3 from 96.4 in April. Yesterday, Germane PPI of April has risen to 5.2% y/y from 4.2% in March and monthly by 1.1% from just .5% in March. The data show a strong inflation pressure at the producing level which can transfer to the consuming level. Currently, the EU is suffering growth slow down and strong inflation pressure as the current high oil and commodities prices. From another side the US recession expectation and slowing demand is affecting negative on the EU. That's beside the strong Euro which tackles the EU exports to US. We wait later this week for the release EU May flash Euro zone Manufacturing PMI which is expected to be in expansion but at just 50.5.

From another side the greenback was under pressure across the broad as the new highs of oil prices above 130$ per barrel. The current high oil prices is slowing the demand and the Fed's stimulating easing cycle effect which can threat the US growth further and put renewed pressure on the greenback to get as it makes the recovery after the crediting crunch harder and cause a dovish consuming sentiment. The fed's minutes of the last meeting have shown the increasing pressure of inflation upside risk along with growth downside risks. The minutes show that there can be a holding of interest rate unchanged which can cause stagflation amid the current downplaying of the growth in US and the high oil prices which tackling the easing actions and demand. The gold is still holding above 920$, on the new highs of the crude oil which fuel the inflation pressures and lowering the value of the greenback which put weights on the growth and dampen the investing cooling the growth increasing the demand of gold as a reserve of value.

Best wishes

FX Consultant

Walid Salah El Din

E-Mail: mail@fx-recommends.com

Published on  Thu, May 22 2008, 14:36 GMT