On Feb 24th EURUSD started the European trading session with a decline (USD grew against EUR).
According to Deltastock analysts, the strengthening of USD against EUR has been conditioned by the following factors:
· Unrest in the Middle East and Northern Africa.
· Rumors among the business circles about new potential problems in the EU: they say Portugal will have to ask the EU for financial aid.
The company’s experts mote that the 3-wave bullish pattern started at 1.1875 is the dominating pattern at the moment. Bigger timeframes indicate that EURUSD is still in the center of the 4-week price range. Until the price stays below 1.3861 (February high), it is better to sell the currency pair. However, the deviation from 1.3861 is just a correction so the price may easily exceed its bounds. A breakout of 1.3427 will make the bears feel more confident (however it won’t probably be enough). In mid-term perspective it is better to abstain from trading.
Public unrest seen in the Maghreb zone and the Arab East makes investors switch to safer assets. That is why they invest in the USD-related assets. The revolutions and mass protests in the area have a negative impact on the prices of crude oil as investors are afraid of irregular supplies.
Yesterday at 5.00GMT at NYMEX the April futures of WTI (Light Sweet Crude Oil) gained $ 6,63 (or 7,69%) reaching $ 92,83/b. The April futures of Brent gained $ 1,31 (1,24%) reaching $ 107,05/b. The instability seen in the Middle East and Northern Africa is expected to push the crude oil prices further up.
Growing oil prices usually initiate the decline of the bi-currency basket, Deltastock analysts say. But now investors are switching to the USD-related assets as it makes the US currency stronger. The growth of USD is compensated by the decline of EUR. So the bi-currency basket remains “stable”.
World markets: struggle of Asian “tigers”
The Asian “tiger” dominated the world markets during the last week. Despite the numerous statistic data from the US and EU, investors were focused on the inflation processes in China:
· Last week started with the news from Asia. The Japanese GDP in Q4 2010 declined 0.3%, which turned out to be worse than expected. Moreover, the GDP declined by 1.1% year-over-year.
· Japanese Prime Minister Naoto Kan set the “bulls” at rest by saying that the economic contraction was connected with the end of the governmental program aimed at stimulating auto sales and that the future economic recovery would be better than expected.
· China released its Trade balance report for Q4 2010, which also reassured the bulls as the contraction of the surplus through increasing the imports made the local participants believe that the domestic demand had increased, which was expected to initiate the fast recovery of the global markets.
· The given trade-balance info became indicative for China. China comes 2nd in the rating of the world’s biggest economies. At the same time the rumors about the January inflation rate in China being lower than expected temporary reduced the concerns over possible tough monetary policies.
Then it was Barack Obama who “entered the stage” of global markets, introducing the Congress to the plan of reducing the budget deficit by 1.1 trillion dollars within the next 10 years:
· According to the US draft budget introduced by the US President the deficit will reach $1645B in 2011. Then it will sharply decline down to $1101B in 2012.
· If the tendency is maintained the US budget deficit will decline from 10.9% (seen this year) down to 3.2% of the GDP by 2015.
· The Bank of Japan set the overnight rate at 0-0.1% and increased its estimation of the economic growth. However the market showed no significant reaction (stayed neutral).
Has George Soros become more interested in gold?
It should be noted that after the previous trading session the European stock markets were closed at the 29-month high while the stocks of numerous mining companies were growing in price because of the higher demand for raw materials shown by China:
· Further market activity was mainly conditioned by the mixed macroeconomic data for the Euro zone and the US. In particular, the GDP of the Euro zone and France grew 0.3% in Q4 2010. However, the year-to-year growth was 1,5% for France and 2% for the Euro zone.
· The German ZEW economic sentiment index reached 15.7pts in January, which is just 0.3% higher than the previous value and is considerably lower than the average historical value of 26,7pts.
· The US news block came out next. It disorientated the market participants as it didn’t clarify the situation. The Retail Sales value gained 0.3% in January, which turned out to be the lowest pace of growth since summer 2010.
· The inventories of the US companies reached 15,43pts (the previous value is 11,92pts).
A range of Asian companies improved their investment ratings, which made investors more confident about them as compared with the US markets:
· However the difference was eliminated at once, right after the US PPI gained 0.8% while the construction of new homes reached 14,6%;
· India and Japan signed an agreement about lowering the custom duties within the next 10 years.
· The market ignored the data on the UK labor market, which turned out to be worse than expected. It happened because the market participants were focused on the G-20 meeting.
Moreover, they watched the Fed Res Chairman Ben Bernanke speaking on the QE2.
· He rejected the charges that the QE2 supposedly favored some price bubbles.
· He pointed out that the developing countries had all the right tools to combat excessive liquidity, including the adjustment of the currency rates.
In particular, at the end of the week China’s index of the leading economic indicators turned out to be worse than expected (-0,5%), which came up to the market expectations concerning the further radical steps taken by the Chinese authorities.
The People’s Bank of China announced that on Feb 24th it would raise the reserve requirement ratio by 50 basis points.
· The news made the European markets decline. Thus, Beijing is trying to curb the extra liquidity in the national economy. The inflation rate (y/y) in China reached 4,9% in January, which was lower than expected but higher than the previous value (4,6% in December).
· On Friday the market were closed with a slight increase: Dow gained 0,59% and reached 12391,2; S&P500 grew by 0, 19% up to 1343,01; Nasdaq gained 0,08% reaching 2833,95.
Market Leader notes:
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