The market worries about the Japanese earthquake consequences are still containing the market sentiment hurting the risk appetite which has been hit last week by Moody's downgrading of the Greek sovereign debt 3 notches to B1 and Spain's debt to Aa2 triggering further worries about the debt risks evaluation in the Euro area while the markets are preparing for a tightening cycle to be entered by the ECB for containing the prices which should increase the cost of borrowing and covering the bonds auctions in Europe lowering the bonds and stocks prices after they have been underpinned by the adopted easing stance of the ECB after the credit crisis until now and in a reaction against these increased market worries, the European countries after germane approving on continued pressure from other members recently agreed during the weekend to extend their 250b Euros package for aiding the ailing European countries of debt to 440b Euros while the markets can not rule out a new request from Portugal following Ireland's request last year to have an aid from this offered bailing out plan accompanied with the IMF which is supported mainly by US.

Despite the drop of US preliminary figure of UN. Michigan consumers' sentiment of March to 68.2 from 77.5 in February while the market was expecting getting down to just 76.5 because of the rising of oil and energy prices and the Japanese earthquake, the US equities could have a green session by the end of last week closing up by 59 points above 12000 psychological level at 12044 correcting some of last Thursday loses but this is not widely expected to be continued by god's will, after the market had seen more worries about the economic situation in Japan which can shrink in a stronger pace because of this sad event consequences this year after we have seen shrinking by .3% quarterly in the last quarter of 2011.

The US equities markets have been already under pressure by the drop of market confidence which followed the new downgrading of Spain underpinning the risk aversion sentiment supporting the greenback versus the single currency which came under pressure with its back securities leading Dow to have a deep red session last Thursday amid rising of US trade deficit to 46.3b$ while the market was waiting for just 41b$ because of the rising of oil prices and also rising of US initial jobless claim to 397k from 371 a weak earlier adding more worries about the stability of the labor markets to lead Dow to close below 12000 at 11984 on this new added risk brought back from Europe threating the market confidence in the business spending to the current risks of rising of commodities and energy prices and the tension in Libya.

The cable could close last week above 1.60 psychological level after diving below it reaching 1.5975 as the gains of the equities market have put pressure on the greenback supporting the sterling which was suffering from the MPC decision of keeping the interest rate unchanged at .5% and the buying bonds plan at 200bln Stg as the recent meeting minutes have shown that there was growing of the voting for tightening after as Mr. Dale has given his vote to hike the interest rate by .25% like Mr. Martin Weale and Andrew sentence has called for hiking by .5% while Possen was the only vote for increasing the buying bonds plan by another 50b Stg while the other 5 MPC voting members including BOE president Mr. Mervin King preferred leaving the interest rate unchanged keeping BOE 200b Stg buying bonds plan unchanged and this mixed position is looking holding until now as taking any direction will cause emerging of the other direction risks while the sterling rises when it finds signs of inflation and quickly gets back under pressure with the signs of economic weakness and both directions signs are existing containing the sterling movements

As we have seen recently with the down revision of UK Q4 GDP quarterly from -.5% to -.6% and the rise of UK Feb CPI to 4$ yearly and also the release of February Confederation of British industry survey of the retails sales which was the best figuring out of the stagflation case facing the BOE as it has fallen to 6 from 37 in January to ensure the market worries about the growing pace of the demand which is moving the growth up and in the same time the figure of the selling prices inside the retail sales sector has shown strong rising  from 43 in January to 73 in February which shows the need of tightening too.

Kind Regards

FX Market Strategist

Walid Salah El Din

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