The equities markets could have a breathe yesterday with awaited announcement from the European financial ministers after a massive selling on growing worries about the European financial system and the European countries ability to cap the credit crisis which started in Greece from spreading out to other countries affecting negatively on the market confidence.

The EU fin Minister have promised to provide 750 billion euros in a rescue package plan under the request of the European countries which facing debts problem opening the door for the ECB to start discussing and buying European bonds by the volume which is seen suitable after the market has been disappointed by Trichet's comments about not discussing this issue in the ECB meeting last Thursday!. It is not a functional deficit in the ECB but there should be a joint decision after the financial ministers take their decision.

While the MPC members have preferred to wait for yesterday to keep the interest rate at .5% with no change of the BOE 200$ buying bonds plan waiting for a clearer results of the UK parliament elections results which came mixed with a new surprising announcement from Gordon brown to quit from leading the labor party and to continue the negotiations with the democratic party for forming a new ruling government which hurt the British pound strongly across the broad driving it down below 1.49 versus the greenback and it is now trading below 1.48 with spreading worries about the mixed political picture in UK influences and the impacts of the new announced EU rescue plan package over the long term at the current low economic growth rate in the Euro zone which has not yet negatively impacted by the debt crisis and the requested austerity measures from the ECB and the European governments and their stimulus plans which will cap the governmental spending affecting negatively as well on their GDP which is actually struggling lagged behind US which can effect negatively on the market sentiment encouraging the risk aversion underpinning the greenback from another side. The single currency could have a strong opening this week above 1.2875 which was its previous support of April 2009 getting momentum to continue its rally to reach 1.31 before losing it falling back again breaking its psychological level at 1.3 and trading currently below just below 1.27 and further falling can lead to a second test of 1.252 which can expose 1.233 to be broken which was the formed main bottom of October 2008 amid the credit crisis and over the medium term you can find the main strong level is at 1.16 which was the main support level whereas the pair has started its rally to 1.604 before falling to 1.233 and rising back forming a lower high at 1.515 in the beginning of last December.

After the new European announcement of affording 750B euros to rescue the subjected economies in the Euro zone to the debt crisis, the worries about the impact of it got back to the market sentiment driving the European equities markets and the US indexes future down helping the gold to creep up again above 1200$ in the face of its previous recorded high on the third of December 2009 at 1226$ after it has exposed to profit taken last week with a strong falling of the oil prices but it could come back again to its uptrend getting back above 1200$ finding support above 1150$ closing.

The gold as a better safe haven option with the current global missing trust in the bonds attractiveness and increased worries about its rewarding as a fixed income option to the investors who are looking for a saving option of their money value and that's rather than the increasing of the commodities and energy prices which are still pushed up by the current low accommodative levels of interest rate across the broad which is lowering the cost of borrowing from a side and the value of the currency from another side.

 

God Willing, it is important this week to wait again for any new deal can clarify the future of the coming government in UK besides US trade balance of March which is awaited to be -40b$ from -39.7b$ in Feb and US retail sales of April which are expected to increase by .3% from 1.9% in March and by the end of the week, it is important to wait for the preliminary release of US Michigan consuming sentiment survey of May which is expected to come at 73.2 from 72.2 in April.

Best wishes


FX Consultant

Walid Salah El Din

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