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24/7/2008 − The Current Market Sentiment

Thu, Jul 24 2008, 02:30 GMT
by Walid Salah El Din

FX Recommends

The prospect of easing oil demand is still containing the market sentiment weighing on the prices of oil. The greenback could extend its gains across the broad because of these Oil prices easing trading lower than 130$ a barrel currently. The equity market has gained trust too from this decline of oil prices after the US financial quarterly earning reports which have given the market the sentiment that the credit crisis is easing and there can be no worse than what has been done because of the housing market slump after last summer US sub-prime mortgages bad loans problems which dragged the home prices down and caused worries about growth and an ease of the interest rate to 2% from 5.25%. The US joint plan of the US treasury and the Fed for bailing out Freddie Mac and Fannie Mea has given a boost to the financial market amid better than expected release of JP Morgan quarterly earning report even after Merrill Lynch the second quarter loss of 4.89 Billion and citigroup loss of 2.5 billion, the believe that the  credit crisis can ease in the future could contain the market sentiment.

The Japanese yen is still under pressure on this current optimistic market sentiment as the first funding currency of the carry trades for taking risk as its very low interest rate. The greenback is trading above 107 versus the Japanese yen right now while The Japanese total trade balance surplus of June which declined to 138b yen from 365.6b yen in May and it was expected to be 503 b yen has not had a realized impact on the Japanese yen. The Japanese exports declined yearly by 1.7 in June and its imports increased by 16.2 %.

Last week, The US CPI which has come at 5% and the market was expecting 4.5% and the core figure which excludes the food and energy has come at 2.4%has come higher than the market expectations of 2.3% showing strong inflation upside risks in US in this same time of struggling growth Which could add to the greenback as it has shown an increased inflation pressure on the Fed to consider rate hiking in the face of this building inflation in US and yesterday Plosser the fed member of Philadelphia has given a push to the greenback after referring to the probability of tightening for facing inflation. Plosser was one of the opposing votes which dissented the recent fed's cuts in consideration of the high inflation current levels.

The currency market was stagnant waiting for a major change to move by these comments taking keys from the equity market and the oil prices mainly. We have later today the release of US existing home sales of June which were 4.99 m in May and are expected to be 4.93 m and tomorrow, we have US new home sales which were 512k units in May and are expected to be 510k units in June. We have also US UN Michigan consuming sentiment survey which is expected to be 56 in July.

And from EU, we have today flash releases of this month PMI the service and manufacturing sectors and both of them are expected to come slightly below 50 in the contracting territory and also the release of the germane IFO business climate of July which is expected to be 100.2 from 101.3 in June. These data are very important to the single currency.

And from UK we wait today for the release of UK retail sales of June which is expected to grow by 4.4% y/y from 8.1% in May and to decline monthly by 2.5% after last month surprising surge by 3.5%. The British pound has been supported today by Basely vote to hike interest rate by .25% in the recent meeting of the MPC in the face of the inflation forces were appreciated by all members as the minutes have shown but David Blanchflower who expected inflation to be contained over the medium term referring to the growth serious needs currently of cutting interest rate by another .25%

Best wishes

FX Consultant
Walid Salah El Din
E-Mail: mail@fx-recommends.com
http://www.fx-recommends.com

Published on  Thu, Jul 24 2008, 02:31 GMT