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19/11/2008 − the current market sentiment

Tue, Nov 18 2008, 23:22 GMT
by Walid Salah El Din

FX Recommends

The currency market volatility has come down this week taking clues from the equity market direction changes which have become the leading indicator of the global markets recently as the current financial markets turmoil.

The greenback has found strong support recently from the sell off of the equity market which seemed persisting after the recent weak figure of ISM manafacting index of October which reached 38 in the contracting area below 50 which refers to a longer time than what was expected and evaluated before getting back above 50 again.

The oil and commodities prices are still under pressure as the market expectation of a decline of demand globally is still containing the current market sentiment.

The yen is still holding most of its recent gains versus the european currencies causing strong crisizms from the japaneses and owes of the japanese equity market as its negative impact on the japanese exporters versus their european counterparts who finds strong support from the accomoditive quantative  easing stance of their central banks which is expected to continue while the bank of japan having small rooms for further cutting. The japanese yen which is the first funding currency of the carry trades as it is very low yield which is .3% currently after the BOJ last cut by just .2% gets strong support from the unwiding of the carry trades transactions.

The gold trading was mixed and volatile recently as the liquidity problems is underpinning the greenback from a side and the risk aversion is giving support to the gold as a reserve from another side amid the current missing trust sentiment but the inflation outlook which is looking down because of the decline of commodities and energy prices or the recession can put weights on the gold which is not making it the best to be bought at this current stance of growth slowing down which came accompanied with a lack of liquidity supporting the greenback. It is important to wait for the release of US CPI of October data which is expected to show an increase by 4.3% y/y from 4.9% in Septemeber and a decline by .5% m/m from a flat reading in September.

Best wishes

FX Consultant

Walid Salah El Din

E-Mail: mail@fx-recommends.com

http://www.fx-recommends.com

Published on  Tue, Nov 18 2008, 23:24 GMT