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7/5/2009 - The Current Market Sentiment

By god's will, we are looking forward for the ECB interest rate
decision later today. We expect it to come as widely expected with a
cut by another .25% with an elevating of the current deflation risks
with no additional untraditional easing steps following US and UK in
their adopted quantitive easing policy.
The ECB has referred to the inflation pressure that can resulted from
adopting this policy and in the same time Trichet has downplayed the
deflation risks in the Euro zone over the medium term but it was the
first time to the ECB to refer to this policy in its meeting which has
been read as a smoothing to the market as they always do to avoid
market shocks.
But the improvement of the current market sentiment and the financial
market conditions can help saving these untraditional easing steps for
a serious time as currently the market believe that the worst has
become behind and the recovery will be gradually following US which
lead the equities market in the recent 2 weeks to cover its loses of
the beginning of this year which could underping the single currency
recently after suffering from the low level of inflation and the
increased probability of deflation which can enable ECB to cut the key
interest rate in the eurozone further and taking untraditional easing
stimulation steps forward in its current easing policy to spur the
current cooled invetments by adopting the quatitive easing policy
which can be by buying eurpean bonds for affording liquidity to the
european governements to spend further and helping the ailing economy
following US.
We have seen this week a slight improvement of The EU PMI manfacturing
index of April to 36.8 from 36.7 in March and PMI Services index of
April to 43.8 from 43.1 in March which refer to a samilar improving in
EU following US but in a slower pace as US April ISM non-Manufacturing
index has improved to 43.7 from 40.8 in March and better than the
market expectations of 42.5 following April ISM Manufacturing index
which came better than expected at 40.1
The optimisim in the equity market has come back yesterday after
taking a a breath on Tuesday following the strong beginning of this
week amid increased risk apitite contianing the current market
sentiment beliving in a closer recovery can be later this year. Dow
could get over 8500 closing at 8512. The currency market was little
unfazed of these data waiting fo the ECB interest rate decision and
April US labor report tomorrow which is expected to come with a fewer
number of lost jobs than what was expected after the release of US
April ADP changes which come at just -491k! following earlier
Bernanke's testimony which referred to a gradual recovery and
stablizing in the housing market and a current slower pace of
contraction but if the US non-farm pay roll came worse than the
earlier market consensus of -631k this can cause a problem to the
recent equities markets rallies as the market is waiting to see even a
softer pace of laying off as the unemployment current pace can
undermine the consuming sentiment which have improved recently as we
have seen US April US Consumer Confidence index which was expected to
go up to 29.5 from 26 in March coming better than expected at 39.2
following the preliminary release of April University of Michigan
Confidence index which came better than the market expectations of
58.5 at 61.9 and the final reading came higher at 65.1 ensuring this
improving by the end of last week.
Best wishes

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

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