The current market sentiment

The oil prices and their volatile actions have contained the markets sentiments recently as their high effects on both of inflation and growth at these serious levels of inflation and sluggish growth. The greenback could extend its gains across the broad because of the Oil prices easing lower than 140$ per barrel since last Wednesday after the weekly release of US oil inventories data. The oil is trading lower than 130$ a barrel currently.

The equity market has gained trust too 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 market sentiment as the first funding currency of the carry trades as its very low interest rate. The greenback is trading above 107 versus the Japanese yen right now.

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 today 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 Beige book which comes 2 weeks before the next fed's meeting to show the current economic conditions and also the weekly EIA crude oil stocks data and later this week, we have the release of US building permits of June which was 1.091m in May and by the end of the week 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 Michigan consuming sentiment survey which is expected to be 56 in July.

From EU, we have tomorrow 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.

Best wishes

FX Consultant

Walid Salah El Din

E-Mail: mail@fx-recommends.com