European Shadows Of Optimism On Good Data Or A Needed Correction?!

Daily Forex Fundamentals | Written by ecPulse.com | Feb 02 10 11:07 GMT |

The day starts like any other in Europe today, with the jitters and anxiety still prevalent within markets overshadowed by a stream of sound economic fundamentals. The incoming data is not topnotch today from Europe, yet the general sentiment is taking over following yesterday's big manufacturing surprise from Europe and the United States. Starting the day was a rebound in German retail sales in December, capping the holiday sales with a gain amid gloomy celebrations highlighting a recessionary year all through. Sales rebounded with 0.8% gain following a lower revision to November's drop to 1.7%. The volatility in markets can surely be resembled by their interpretation of economic data, which recently has been based on a very volatile short term basis overshadowing the longer term trends. This shallow analysis of the data merely explains the periodic sentiment slumps that are being seen, echoed in panic sell-offs across markets. In assessing the trends, once will see that a monthly rise in retail sales is sufficient enough to say the economic recovery has not lost its steam, which was coupled today with rising prices at factory gates in the Euro Block. December Producer Prices gained 0.1% following 0.2% revised rise in November beating the flat estimates. While on the year the drop eased to 2.9% from -4.4% in November. Anchored pipeline pressures Well, here is the case, inflationary data are surely being watched thoroughly nowadays, which was triggered mainly in the latter months of the year when speculation grew over the ECB to withdraw measures and start hiking rates. Well, they did indeed take the first step in ending some of the liquidity measures starting December, but again, if we focus on Trichet's testimony if I may call, after every meeting, his reiterates the Governing Council's stance regarding subdued price developments and anchored inflationary pressures. For one, that is very true for the time being, with the rising slack in economic activity, the high unemployment and the slowing government spending on the back of swelling deficits, the picture sounds about right. Our central assessment for medium term inflationary trend develop from the unorthodox easing measures adopted by the ECB and other central banks to ease the credit crunch and snitch the economy out of its recession, and so far, the extra liquidity has not spurred inflation! Two main factors linger to that central projection; one is the inability of central banks and governments to withdraw stimulus measures in time as the economy remains weak. While the second is the reversal of the support to the banking sector in an ironic inflationary trap as banks refrain from limiting their excessive risk taking measures and settle with their revitalized balance sheets on the back of government sponsored bailouts! Well, the first is the main fear, as the second so far is under heavy scrutiny thanks to already announced plans by governments and central banks to rein on excessive risks by banks and their capability to maneuver, like the Obama proposal, Darling's windfall tax on bonuses and Basel committee recommendations! Nevertheless, the market can not help but image a flawless market once again and positive optimism over current conditions and the outlook for the global economy! A clear testimony to that is the United Kingdom itself; the economy lingered for six consecutive quarters in recession and when the economy did expand in the fourth quarter it was by a slim 0.1% that even missed median estimates for 0.4%! Take for instance the construction data today, the construction PMI from UK reported continued enhancement in the sector as the performance improved in January to 48.6 from 47.1 which coupled with rising property values for the past couple of months was taken as a testimony to the improvement and the bottoming out of the sector's depression! Hate to break it to you dear reader, just the sector remains in contraction with the reading below 50, house prices were in fact rising, just the pace of closed sales, mortgage approvals, and property loans where not at the same pace hinting that the decline in supply did in fact have a great role in supporting prices! Let's talk facts! I am not a pessimist dear reader, I am a realist. If we want to talk facts and figures, well as a rational spectator of this economic fiesta I surely will not say that we are resting ashore until the latter half of this year, and maybe the last month of the year. That is reality, an exodus of the recession will not be a quarterly, two or three GDP expansion, it will exiting of expansionary monetary measures, trending down of jobless, rising in baseline inflation, and PRUDENT FISCAL POLICIES! All we have seen now was promises and no rationalized work on the move. As for the jitters of the market, well let us face it, markets are still moving on rumors and reversing on facts and that is pure 101 market hesitation in terms of economic realities; national statistics are clearly not the same as corporate endeavors! We are going to look beyond the economic data today and we are going to focus on the current sentiment in the market; which is the economic recovery is loosing momentum! I am placing my bets on two main events this week, where the first is with tomorrow's EC issuance of recommendations on Greece's budget program. Let us face it, all the figures from the euro zone where silenced against the growing speculation of Greece's deficit build up to 12.7% of the GDP the highest in the EU and the fear that Greece will drop the euro and others will be forced to follow suit –which I might say is absurd- has tarnished the euro strongly and we expect will continue towards testing the $1.37 barrier! As for the other fact of the week, well it need's no introduction, as its Thursday's rate fiesta. The BoE's stance on the APF program and Trichet's insight on the deficit and the exiting of another lending facility by the end of this quarter are to take the heat in Europe. We are advising you dear reader to not be victimized by the cliché in the market or be captivated by headlines! The market is READJUSTING and to be a smart one you need to understand where the bottom is and what is the new trend going to be! So place your bets on the winning horse and be sure that the volatility and the market rollercoaster is far from over and the joyride is about to start. Put your dancing shoes on for the risk limit to our assessment will only be the euro below $1.36!!! Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. 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