Friday, August 02

Asad Rizvi

US economic indicators are clearly pointing towards better conditions that suits FED plan to reduce its asset purchase amount. Housing that plays key roll to stimulate economy has been performing well and so does manufacturing. The continuation of current pace of growth should be good enough for FED to execute its earlier tapering plan that FED Chairman hinted in June before making a U-turn due to lot of hue and cry and this could be one factor that FED in its Wednesday's MPS, it kept low tone on the subject. 

This week's ADP Employment Change Data, Challengers Job Cut data and Initial Jobless Claims are all indicating positive Jobs data announcement today that does not support Dovish view. If we look at the 10-year bond yield that had surged to 2.72 pct. Strong US Dollar and weak Pound, JPY, EURO and Gold speaks in volume about market expectation that further endorses my view. Therefore, unless there is a surprisingly poor unemployment data announcement market should be prepared for FED's next move. My guess is that Payroll could be around 200K and since last time unemployment rate was 7.56 pct, with better job condition it will certainly drop to 7.5 pct.

Meanwhile, Draghi once again played smart by sounding less Dovish, but reaffirming that going forward further easing remains a possibility. His stance is understandable because when the economic numbers are entering a positive territory then making noise does not make sense. 

Every policy makers stretches an extra yard and and takes credit for the good work, despite worst situation in sight unless the damage becomes obvious and this is how Draghi was responding to queries showing confidence in economy, by stating that lending conditions have improved, depositors are showing confidence in economy. Draghi is well aware of the risk faced the Euro zones region, this is why he kept on repeating that Eurozone rates will not rise for considerable period of time, interest rate to remain at or lower level hinting that rate cut is still a possibility. But the real truth is that the banking system in peripheral countries is still brittle, unemployment rate is still too high and spending for growth purpose is still a difficult choice for peripheral economies and hence, honeymoon period will be short lived.  

GMT 2:32 -  EURO @ 1.3210 = Prior to US jobs data Euro should stay below 1.3240 for a possible test of 1.3170-75 zones. however, a move beyond 1.3290 would help European currencies to make bigger gains, whereas dip below 1.3120 will see fall deeper fall towards 1.3020-50 zones.

GMT 2:39 - GBP @ 1.5119 = Cable should has resistance around 1.5160-80 and needs to move beyond 1.3235 for bigger gains, but in short term I expecting more losses for Pound Sterling. Drop and break of 1.5040-50 zones will encourage for bigger fall.

GMT 2:48 - JPY @ 99.44  = Japanese currency is suspect to better US jobs data, which may decide its immediate fate that if it will test and break Yen 100 level. However, during the day as long as 99.10-20 holds, see risk for a test of 99.70-80 zones. Break of support level will see Yen gaining sharply, break of 98.70 will  increase for a test of 98.10 levels, which is not a favoured scenarioGMT 2:52  - 

GMT AUD @ 0.8910 = May struggle to move beyond 0.8940-50 levels, as I see gloom for the Aussie next week. Downside test and break of 0.8880 is required for 0.8850.

GMT 3:02  - GOLD @ $ 1308 = Heading for a choppy day. Top around $ 1315-18, break risk for $ 1328. However, prefer to pick top, as see possible risk for break and drop below $ 1297 for  test of $ 1291-93 zones. To catch the big move of the day, upside level of $ 1350-55 is crucial on possible break of $ 1328. However, I have no love for gold and I am expecting break of $ 1290 for a drop to test $ 1250 and below.

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.