The Current Market Sentiment

The single currency is still under pressure after yesterday ECB decision to cut the interest rate by 0.25% to be 0.5% saying that was for stimulating the economy while the pricing pressure is strongly well contained currently as the falling of HICP flash reading of April to 1.2% y/y.

The decision was widely expected as the economic activity slowing could dampen the prices over the consuming level by the weak demand while the unemployment rate in EU countries are still rising up by longer than expected recession as the ECB has mentioned that it has lingered to this spring but it is still looking for rebound in the second half of this year.

The pressure on the ECB has increased too by these weak data after the IMF had lowered its expectation of EU 2013 GDP in April to shrinking by to 0.3% from shrinking by 0.2% it has expected last January imposing direct request for monetary stimulating of the EU struggling economy which is under the pressure of the fiscal consolidations and the answers of the ECB governors was referring to the need of waiting for more data to move forward.

So, with these data, yesterday decision has been widely concluded and that’s why the single currency could rise after the decision above 1.32 but following Draghi’s comments that there may be a possibility for further easing in the future and there were who were calling for larger cut in the meeting. The single currency could not stand above 1.31 versus the greenback following this reference despite the risk appetite improving during the US session yesterday.

From the other side, the greenback was well supported by the falling of US initial jobless claim of the week ending on 26th April to the lowest level in five years at 324k before the release of awaited US labor report of April which is expected to show rising of the US non-farm payrolls by 145k after rising by 88k in March while the US unemployment rate is expected to stand at 7.6% after decreasing last month from 7.7% in February.

And here we should mentioned that the Fed has maintained this week again its view that there is no pausing or cutting of its monthly pace of buying which is at $85B currently by falling of the unemployment rate to 6.5% granted by the well-anchored inflation pressure in US as we have seen also this week with the falling of the Fed’s favorite inflation gauge US PCE to 1% yearly in March from 1.3% in February while the core PCE has shown continued inflation easing pressure in March too by falling to 1.1% from 1.3% in February and January, 1.4% in December, 1.5% in November and 1.6% in last October.

So, we are still away from the 2.5% yearly level of yearly inflation which can trigger staving off of the QE policy which is also weighing down on the greenback and the exit of it means normally direct positive effect on the greenback and the opposite for the gold which could rise obviously following Fed’s assessment which has shown that there can be a possibility of increasing the pace of buying as there can be a possibility of cutting it on the economic changes in the future by God’s will.

As the market was pricing more on a possibility of cutting or pausing as recent meetings minutes have shown with no talking clearly this way about a possibility of hiking the pace of buying. So, the gold could find a way to creep up with reaching currently 1470$ per ounce after it has been under pressure 2 weeks ago on breaking of its previous well known supporting level at 1523$ could contain its falling more than once since getting over it on 8th July 2011 to lead to this massive characteristic way of falling of it reaching 1321$ before finding a way to correct that falling to this current level over 1400$.