Monday, July 15-19

Asad Rizvi

GMT In the absence of any major economic data last week, FED’s FOMC meeting minutes followed by Chairman Ben Bernanke’s speech on monetary policy dominated the market. There is lot of confusion and debate going on about Fed’s next Policy move after Ben in his last month’s press conference gave a clear signal that Fed is planning to reduce its asset purchase amount, which could be done by middle of next year, but it would continue with its accommodative policy stance for longer period of time. It seems that Bernanke probably succumbed to external pressure or had to change his statement wording to halt uneasiness in the financial market at his Boston appearance last Wednesday by giving another view that it could be too soon to say that the economy has recovered.

I don’t think FED is confused about its next line of action, as there is no change in Fed’s policy stance. Scaling down of its asset purchase will purely depend on economic performance.  At its current growth pace majority of the Fed voting members should not obstruct to the tapering plan. If we have a deeper look at the recent statements given by various Fed members their intention is quite clear.

In my view, on Wednesday and Thursday, in his third time appearance this week to give his semi-annual monetary policy report to Congress. Chairman Bernanke will defiantly have to answer about Fed’s tapering plan that will give much needed direction to the market. Market is mixing tapering with tightening. He may be asked this question that will provide more clarity. I am expecting FED Chairman to show the positive angle of economy because in comparison to his previous appearance, some improvement is witnessed in recent months.

If we take last week’s initial jobless claims as an example that were up by 16.000, it is not at all a bad weekly number due to Independence Day holiday in USA. Unemployment could be little worrisome factor as it is still hovering around 7.6 pct and did not drop in line with payroll that added more jobs and remained flat. This is because payroll survey obtains information from government and private companies that clearly indicates additional jobs number, whereas, unemployment number is based on household survey that ask adults if they have a job or do not have a job, if they say they are looking for job, they are considered unemployed and if they don’t want a job they are not added in the unemployment list because they are not part of workforce.

Meanwhile, European woes continue to weigh on the market with France being downgraded and Portugal still in doldrums, the news from economic front remains a matter of concern, as Euro zones industrial production fell. With Europe already under ECB watch risks more easing pressure if its economy fails to recover. This week’s European data though of minor nature expect for the CPI will set the tone for the European currency.

Pound Sterling could be choppy with sharp both side moves possible, as it could provide mixed bag of reports.  Unless weak CPI, it is expected that strong inflation data could give boost to Cable, which could be opportunity to sell on the rise because this time Dovish Mark Carney replacing Mervin King, as new BOE Governor will be a new voting member that should extend the voting gap to 7:2 from 6:3 except there is change of heart by another BOE voting member. But do also keep a close watch for any demand to add Pound 25 billion liquidity through asset purchase that could give additional bashing to GBP.

GOLD $ 1284 = In the absence of aggressive Central Bank buying, weak Chinese and Indian growth, gold does not possess any strength of its own, it is more dependent on QE money and speculative buying. Any announcement such as complete withdrawal of asset purchase could be demise for the Yellow metal and its holder, though this is not a preferred scenario.

Its move this week will larger depend on release of US economic data and Fed Chairman’s response to semi-annual monetary policy report to Congress. Any gold bias stance would be ideal opportunity to pick the top, as another fall will be unavoidable that could happen in short span of time. Though, I remain bearish for gold.

Gold on the upside needs to clear $ 1298 for a test and break of $ 1310 for $ 1335-40. However, I am expecting pressure on the downside. See risk for a break of $ 1260 that will open doors for a test and break of $ 1240-45. Break of $ 1202 is required to test new lows.

EURO @ 1.3067 = Euro has resistance around 1.3115, break will encourage for a test of 1.3180-90 zones. However, I do not see big move beyond, as see risk for a drop, but needs to push below 1.2960-70 for larger move towards 1.2765, or else 1.3280 and beyond. Latest Range for the week 1.2750 – 1.3280.

GBP @ 1.5101 = Cable is likely to hold around 1.5010-40 and a move beyond 1.5180 is likely to encourage for a move towards 1.5225-50 zones.  Break would encourage for 1.5310. However, see risk that upside should exhaust for a drop. Watch for a break of 1.4950 that should see a move towards 1.4825. Range for the week 1.4825- 1.5350.

JPY @ 99.18 = Yen should hold 98.00-20 zones for an move and break of 99.95 that will encourage for a test of 101.20, break would encourage for 101.80, or else 97.50. Range for the week 97.50 – 101.80.
AUD @ 0.9043 = Aussie to have weaker tone and should hold below 0.9190 levels for a possible test of 0.8910-20 zones. However, break of resistance level would encourage for a test of 0.9250 zones. Range for the week 0.8880 – 0.9280.

DISCLAMER : The commentary/information presented is not intended for trading purpose. The idea is to exchange views with the members/readers. Therefore, I accept no responsibility or liability for any losses incurred due to position taking.