27/5/2009 - The Current Market Sentiment

As we have mentioned in yesterday analyses the market has paid a
serious attention to the consumer confidence figure today. The markets
have shrugged off the decline of March case Shiller home price index
by 18.7% y/y and by 2.2% m/m focusing on it which came stronger than
the market widely forecasts of 42 at 54.9. The number ensure that the
worst has become behind of us and there is growing confidence in
consuming in spite of the great deal of lost jobs because of the
credit crisis which effect negatively on the consumers confidence. The
Dow has turned strongly from the red territory by the data to the
green territory gaining more than 196 points today to close at 8473.
The European equities indexes followed the US ones exactly. The FTSEE
100 could compensate its earlier loses after a long weekend to close
today above 4400 at 4412.
The optimistic market sentiment has weighed on the greenback getting
the single back above 1.40 again after reaching 1.3860 on the back of
the massive decline of the EU GDP reading of the first quarter which
has been revised down to -6.7% y/y and the Germane IFO of May which
was expected to show an improving of the business climate to 84.8 from
83.7 in April and it has come in the beginning of the week weaker than
expected at 84.2 undermining the single currency.
The greenback was trading in a tight range as the UK and US markets
were closed yesterday and there was no key direction from the equities
markets performance. However the greenback was not tied to the
equities markets movements in the recent few days of last week as the
market has focused in the US quantitive easing policy inflation
impact. The greenback is still undermined by the US quantitive easing
policy measures of injecting funds into the markets which can cause an
inflation pressure on the first months of the recovery which is
expected to start later this year and if there is no recovery soon
these funds can cause a stagflation pressure. Last week Fed member
Plosser has indicated his concerns about inflation which can reach
2.5%y/y in 2011. The demand of gold has increased after his comments
pushing it above 940$ as a mirror of the inflation keeps the value of
the investors' wealth.
This new sentiment in the markets can put the greenback under further
pressure and drives the gold strongly higher above 1000$ and it can be
one of the best options to the investors in the coming period. The
gold has actually met at resistance at 966.80 which was the lower high
of this year on March after the formed high of Feb at 1006 and it has
fallen to test 940$ as a support by the optimistic US consuming figure
which pushed the gold up again above 950$. The gold could form double
bottoms last month at 864.90 and 864.50 and then started to make
higher lows at 878.85 then 914.95 before breaking out 945 last week
and this higher bottom and successful test can encourage it to test
966.8 as a resistance.
By God's Will, We have further US housing data tomorrow with the
release of  US existing home sales of April which are expected
increase monthly by 1.8% a decline in March by 3%. Last week we have
seen  US housing starts of April slumping to 458k y/y and they were
expected to be 520k from 530k in March and the building which
stagnated below .500M at .494M m/m and the market was waiting for
improving to .530M from .510M came in March. These housing data have
come after the release of May US NAHB new home which have increased to
16 from 14 in April. The housing data have really shown recently that
the recovery of the housing market will be cautious and in a gradual
pace to overcome the Sub-prime mortgages loses and the credit crisis
and recession negative impacts.
Best wishes

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