The greenback is still keeping last week gains across the broad with the beginning of this week amid increased market speculations of a tightening action this year from the fed after the opposing voting which came in the last Fed's meeting last week as Hoening who is the Fed's governor of Kansas who has voted for tightening by .25% last week and what has supported these speculations that the Fed has mentioned the recovery in its statement this time which could restore the confidence in the US economy however the Fed is still expecting tame inflation risks over the medium term which can help the fed to extend its keeping of the interest rate low for further extended period of time which is the only left sentence and waited  to be removed to signal a beginning of tightening in US.

  The preliminary reading of US GDP Q4 came last Friday along with this new fed's appreciation of the recovery in US rising y/y by 5.7% while the market was waiting for just 4.8% with a price deflator rising by just .6% and the market was waiting for 1.3% after rising in the Q3 by just .4% but the most worrying part of these growth data was that this rise has been backed to a rising of the inventories not from the consuming spending which came down in the fourth quarter to be 2% from 2.8% in the third quarter which can show that the utilization in US is still in trouble which can threat the labor market as the demand is still struggling which can effect negatively on the profitability and the asking for jobs.

In spite of that the selling pressure is still getting momentum in the equities market threating 10000 psychological level of the Dow by the closing of the last week after mixed earning reports released from the banking sector of the fourth quarter which had tended to show restoring of this important sector which caused the crisis but these reports have not had the positive impact on the equities market which have had after the third quarter which increased the investors' worries after the rally which has started from the 9th of last march when Dow was trading below 6600 reaching 10729 in a constant way last month without a major  correction. The equity market was already negatively impacted by a risk aversion sentiment containing the market since PBOC has signaled its worrying about the prices and lending at the current overheating economy which has grown by 10.7% y/y with inflation beating the market expectations of 1.7% coming at 1.9% showing a high paid price of this growth currently which can effect negatively on the value of the Yuan and the consumers' spending outlook at this high level of utilization in this economy which has grown by 8.9% in the third quarter and it looks in need for cooling down the capital spending at this point which could underpin the greenback across the broad in the recent period with this correction in the equities markets.

The market is waiting today for Jan US ISM Manufacturing index which is expected to follow Chicago PMI of that same month which has come out last Friday surprisingly rising to 61.5 while the market was waiting for just 57.5 from 58.7 in December. UK manufacturing PMI came also up at 56.7 and EU PMI manufacturing index came at 52.4 but this could not light the pressure of the greenback on the single currency and the British pound which has been hit by unconvincing growth figures in the fourth quarter rising by just .1% while the prices are still rising in the last 2 months in UK which can cause a stagflation pressure on the MPC which can be in split in the coming meeting between keeping its quantitive easing measures on for spurring the current struggling growth in UK or taking a tightening action worrying about these upside inflation risks which can persist putting pressure on the British pound.

The major support level currently of the cable is 1.5707 which was the bottom that has been formed last October while breaking 1.583 in the focus of the market with the beginning of this week.

While the single currency is still struggling to get out of the negative impact of the investors worries about the deficit rates of the European countries after the new exacerbating which has come recently from the budget deficit of Portugal which has ascended massively to 8.6% to its growth rate while the European treaty calls for what's below 3%!. In the early years of this decade, we have seen the penetration of this ratio of the Maastricht treaty by Germany which triggered worries even about the equivalence of the Euro zone countries financial situations treatment which was hurting to the single currency in that time but now and after the financial situation has aggravated because of the credit crisis widening these deficits worries are supposed to come from several European countries with the current great ample of liquidities which were needed to be pushed by the ECB after cutting the interest rate massively to just 1% to spur investment saving the economy from falling in a long recession lowering the cost of borrowing and taking accommodative easing actions coming accompanied with governmental rescue spending plans for moving up the capital spending and the investors' trust in the growth but in the same time increasing the worries about the deficit in EU especially with low level of growth resulted from these stimulating plans in the beginning of this nascent recovery.

It is important this week to wait to watch the US Labor report of January which is expected to show a rising of the US unemployment rate to 10.1% and losing further 10k out of the farming sector after losing 85k in December.

Best wishes

FX Consultant

Walid Salah El Din

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