Asad Rizvi
Last
week market did not witness any major change in BOE, ECB & FED policy
stance, though tone of Central Banks remained slightly Dovish. This approach is
probably because of the recent release of string of data’s that showed better
economic condition, which may have given confidence and some hope of better
economic conditions.
However,
by the end of the week focus shifted towards the release of US jobs data that
came against expectation, as non-farm payroll fell by 22K to 162K. Dismal employment
data that was considered the major event of week disappointed trades/investors
that had halted the ongoing momentum.
Interestingly,
what everyone is overlooking is that the Unemployment Rate fell to 4 1/3 year
low to 7.4 pct, which is now closer to 7 pct. FED or its Chairman had never
discussed non-farm payroll numbers at length, it has always put emphasis on US Unemployment
Rate targeting 6.5 pct. I do not think that drop in non-farm number will alter
FED’s tapering plan, which only FED will decide not the market.
From
market/investors perspective the worrisome factor is that scaling down means withdrawal
of liquidity by FED from the banking system that will lead to tighter lending conditions
and hence, rise in cost of borrowing. Market will be forced to liquidate asset
that will not only reduce profitability, but losses may incur.
The
bigger risk is that the size of FED’s asset purchase is so huge that complete unwinding
will lead to maturity gaps and mismatches could even lead collapse of
institutions and economies. For FED the challenge is that it has to initiate at
some point, by reducing the amount first, though in small size to show the
world that it has started to act. It is insane to think that Fed’s asset
purchase is never ending deal.
Since
the economic conditions have not changed dramatically, FED will not deviate
from its ongoing strategy. Market will remain focused on the release of
economic numbers. Fed officials may continue to confuse the market and the
release of Fed minutes on Aug 21 may have more to talk about Fed’s pausing plan.
GOLD @ $ 1310.95
=
Saw another perfect down move as per expectation, but gold got respite from
poor non-farm payroll numbers. The current behavior further confirms that gold upside
is totally dependent on FED liquidity injection. Then why would sellers not dominate
on gold surge when there is not enough demand for gold.
At
time I feel sorry for the gold holders stuck up with their expensive purchases,
as they often pose themselves as gold Bulls when they confuse the market by trying
to mix up paper demand with physical demand. Paper demand has nothing to do
with the cost of gold production cost and no one if bothered about the mining
cost. I know one thing that unlike speculators/investors/hedge funds, Asian and
Middle Eastern physical gold buyers are least bothered about the gold price moves,
because gold is mostly purchased against excess cash available to them and is
not meant for trading purpose. Therefore, tapering will surely matter for all
assets purchased against cheap borrowing if and when withdrawn. Gold future is surely
in doldrums and is set to fall until there is another European or Financial
crisis, but liquidity squeeze will not help the cause. I prefer picking the top
to sell gold, as the Yellow metal remains suspect to tapering talk in the
absence of Central Bank buying and support for Asian and Middle Eastern buying.
However,
there is a minor risk that after weak payroll data there could be some demand
from gold and it is likely to hold above $ 1288-90 for a test of $ 1325-30 levels
break would encourage for another move towards $ 1345-50 zones. Break of $ 1275
will confirm resumption on down move.
EURO @ 1.3280 = The confidence in
Euro zone economy helped by weak payroll will provide room for some more gains
for the European currency, but Euro is likely to trade in narrow band, as USD
should retain its strength that will hinder bigger up-move.
Euro
will surpass 1.3325 levels for a test of 1.3390-00 zones. Require to move
beyond for further gains. If the up move occurs I would prefer to pick the top,
as I do not see gains much beyond 1.3570 for a drop. On the down side break of
1.3210 will once again challenge 1.3150-80 zones. Range for the week 1.3050 –
1.3495.
GBP @ 1.5290 = Cable should find
support around 1.5180-00 levels and only break risks for test of 1.5120-30. However,
break of 1.5350 will encourage for a test of 1.54670-90 zones. Range for the
week 1.5080- 1.5490.
JPY
@ 98.89 = Japanese currency gained strength on back of weak jobs
data. If JPY fails to penetrate beyond 98.10, the currency may weaken against
USD. Break of 99.70 could challenge 100.20 and failure could mean JPY could
regain its strength. Range for the week 97.50 – 100.90
AUD
@ 0.8899 = Fate of Aussie that depends on many factors that
includes both domestic and external economic pressure could bounce back even
after RBA ¼ pct rate and could find temporary bottom around 0.8780-20 zones,
only break risk for drop extending towards 0.8650. However, break of 0.9020
will encourage for 0.9090 and move beyond risks for 0.9180. Range for the week
0.8740 – 0.9220.
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.
current sitiution in golod any trade u suggest
ReplyDeleteWe have already seen a test of $ 1320 in the early hours. Monday is always a slow day as market tries to get hold of the trend. After ISM PMI release we could get clwarer picture. Current fall is likley to extend up to $ 1305-07.................
ReplyDeleteGood ISM daa may help US dollar to make some more gains or else USD will could dip sharply.
ReplyDeleteLevels to watch 1.3235-40 should hold for else 1.32 before up again
GBP still a good buy on dip around 1.5310. Should hold 1.5260-70 levels
GOLD neds to hold above $ 1302 for retest of $ 1315-20 zones or esle could $ 1290-92............
But gold could still bounce back if falls...............
ReplyDelete"Watch out" This is healthy ISM number...........
ReplyDeleteUSD likley to make some more gains
i buy gold with sl 1302 ok sir for a bounce
ReplyDeleteCable could correct and break of 1.5105 could anothe 25-30 pip drop before up again...........
ReplyDeleteOK, but do apply Stops. You have to watch $ 1295-97..........
ReplyDeleteOk pals, I am expecting some more US Dollar gains.
ReplyDeleteSo watch out and do apply Stops.
Cheers until tomorrow...........
ReplyDelete