While the markets are stepping cautiously towards the negations of having a deal to raise the debt ceiling in US from the current $16.4b, the worries about the deficit financing in US are rising up as with no deal there can be another financial crisis as the government which pays 2 million bills a day cannot issue new bonds and it will be forced to wait for liquidity and also cut spending by a way can cause turmoil can lead to default.

The treasuries yield can have space for rising up with worries about the creditability of the US government offsetting the Fed’s efforts of pushing the credit market conditions down and then the markets are not to buy the greenback as a safe haven or for risk aversion but also joining seeking for requested liquidity driving it up in what can be similar to the credit crisis impact but this time the Fed’s role can be capped with no way to go down with the interest rate and also actual existing in the treasuries market and mortgage-backed securities rising the threat of pushing the inflation upside risks.

So, what could be the next step of the Fed then?

Is it to be buying corporate bonds and stocks directly for reviving the economy or letting the market to react to the new financial situation in US as what has been done following the downgrading by S&P to AA+ which can be in check then?

Anyway, while this matter is still in its way to contain the market sentiment by God’s will, the market sentiment has been contained today by the weak labor market in Australia which put pressure on the Aussie Dollar which is still trying to get over its earlier loses following the down beating December jobs report which has shown losing of 5.5k of jobs while the market was waiting for adding 2.3k from 17.1k in November.

The data suggest that there can be more cutting of the interest rate in hand as they have come following trade balance figure in the deficit territory since last July with 2.367b Australian dollar of deficit in November with easing of the commodities prices by a consecutively way since last April with declining of SDR commodities prices last reading of November by 8% yearly after AIG Manufacturing index of December below 50 for the ninth consecutive month even the retail sales of November have shown also shrinking by 0.1% in November while the market was waiting for rising by 0.4% after no change in October.

RBA has already cut the interest rate by 1.75% since October 2011 and the last cut was by 0.25% in the fourth of last month amid worries about the growth rate in EU which suffers from the austerities measures and US which suffer also from unstable financial and political situation ahead of the named fiscal cliff.

God willing, the market will be waiting closely tomorrow for the release of the Chinese GDP of the fourth quarter for moving the Aussie too as the closest commodities market always has its eyes of the Chinese figures.

While the Australian dollar can find in its descending way other supporting levels below 1.05 psychological at 1.0466, 1.0393, 1.0343 which was the recent formed bottom after the charismas and the breaking of it can open the way for more supporting levels at 1.0282, 1.0201 before 1.0148 whereas it has formed its bottom to the current levels on 8^th of last October while rising back again can be met by resisting level at 1.0597 which resisted the Australian dollar way versus the dollar last week before 1.0623 which is still the highest level since 14^th of last September and crossing over it can open the way for higher resisting level at 1.0885 which caps reaching 1.1 psychological level which protect also its top at 1.1079 which has been formed on 27^th July of 2011.

Kind Regards

FX Market Strategist

Walid Salah El Din

Mob: +20 12 2465 9143

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