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16/3/2009 − The Current Market Sentiment

Mon, Mar 16 2009, 02:14 GMT
by Walid Salah El Din

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The rebound of the equity market has continued to the third session on doubts about the ability of it to keep the recent gains after reaching new lows of the year widely last week. Dow has reached 6500 last week before closing at 7224 last Friday.

The British pound was negatively impacted by the BOE adopting of the Fed's quantitive easing policy which pressed of the cable to get lower than 1.38 level last week before getting back some of its loses with the improvement of the risk appetite which weighed on the greenback across the broad but the cable could not close above 1.4 psychological level in spite of this spreading market sentiment last week which can put technical pressure it this week.

The SNB has announced its joining of this same policy last wee cutting the interest rate in Switzerland to .75%-0% threatening of intervening against the Swiss frank appreciation especially versus the single currency because of these times of credit crisis and markets turmoil which drive the investors to get safe haven positions affected negatively on the EURCHF which was trading at just 1.4765 before the intervention which drove it higher to 1.53 after this intervention which can open the door of these actions which can help the growth surely in the exporting countries which depend on their depreciated national currency like Japan and the euro area.

In this recession the increasing supply can reinforce the central banks to do such action for defending their local industries in the face of the strong supply which can dampen these industries and effect negatively on the growth increasing the recession forces. So, this action can be a block in front of the outsider supply pressure and it can be appreciated as a strong protection and it can be understandable and joint too. In spite of what it can do in the forex market volatility in the short term, as we have not seen any a mentioned criticism against this action from other central banks.

The repatriations of March of each year could underpin the Japanese yen which is getting support from the risk aversion sentiment with the greenback on its very low level of interest rate which is just .1% currently. At this time of each year by the ending of March the funds of the Japanese investors comes back to Japan for accounting proposals as the end of the financial year of the Japanese which can contain the market sentiment at this part of the year putting pressure on the USDJPY which can cap it again from cross 100 which is actually strong psychological resistance and last week, the pair get lower than 96 on the market focusing on these repatriations impact before getting above 98 and closing above it.

The single currency was underpinned last week after the European finance ministers refusing of new stimulation packages refusing which can cap the budget deficits of these countries which reached 192.78b$ in US which can threat the total economy creditability and also the currency buying value as well. We wait later today for the release of Feb EU HICP core which is expected to be 1.6% y/y from 1.8% y/y and up m/m by .4% from a decline by 1.1% last month. The broad final HICP reading of Feb is expected to be 1.4% y/y and positively at .4% monthly from -.8% in Jan. The weak inflation rates can smooth the way for the ECB to cut further which can increase the current market discounting of these waited cuts and this can put pressure on the single currency.

Best wishes

FX Consultant

Walid Salah El Din

E-Mail: mail@fx-recommends.com

http://www.fx-recommends.com

Published on  Mon, Mar 16 2009, 02:15 GMT

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