Monday Sept 30 - Oct 04

Asad Rizvi

As we are approaching October, market mood is gradually shifting from FED Tapering to US Debt Ceiling. Since last time market had to wait until deadline to reach an understanding on debt issue, this time President Obama may not have too much to worry because he is already enjoying his 2^nd term.

The tussle about increasing the limit and demand for another rollover will dominate the headlines as, the two political parties the Democrats and the Republicans would continue to debate and show their strength. If there is a shutdown that could become effective from October 01, which does not look a possibility, Washington administration may not wait for too long as delay can dent the US economic recovery and there could be a possibility that the President of USA may be forced to use his authority under 14^th amendment to run business as usual.

This week, I do not have too much to add about the US economic data, as there is lot of confusion about releasing of economic data because of potential shutdown that will become effective from Oct 01. Release of Non-Farm Payroll data due on Oct 04 is the most critical data of the week, since it is the only Non-Farm Payroll report available before the October FOMC meeting could be allowed to release despite shutdown.

Therefore, until settlement is reached market will remain nervous and choppy and lingering of matter would create more uncertainty. The delay would not support US Dollar. Neither would it help the stock market. Gold, Yen, GBP and US bond could be the real beneficiary in a tug of war like situation.

However, Italian government is faced with problems due to resignation from Berlusconi party minister’s resignation deciding to abandon collation partnership with the government. This could be confusing and for the moment may even take out gloss from European currency if unrest persist. We are definitely heading for another volatile week.

GOLD @ 1335.95 = We could be heading for a choppy and volatile month unless there is quick solution and clarity on the US debt issue. Caution and discipline is suggested as sharp both way moves may be unavoidable. Gold may initially finds support and hold above $ 1320 for a test of $ 1355-50 zones. Break risk for test of $ 1380-85 zones, which may even surpass $ 1400 is situation worsens. However, on the downside keep a close watch of $ 1302-08 levels break would encourage for a test of $ 1285-90 zones, which is vital to hold or else more losses will be unavoidable.

EURO @ 1.3520 = Euro is required to move beyond 1.3590-00 for a test of 1.3650, but may struggle to make gains due to Italian unrest. Euro could specially suffer against cross currencies. On the downside if 1.3440 surrenders then the European currency will find strong support around 1.3350-70 zones as the currency has ability to bounce back. Range for the week 1.3320 – 1.3710.

GBP @ 1.6135 = Cable should continue its upward journey and would find buying interest on dips around 1.60. Break of 1.5950-70 is required for more losses, which is not a favored move, as possible upside break of 1.6195 would challenge 1.6240 for a test of 1.6290-00. Range for week 1.5920-1.6350.

JPY @ 98.22 = Speculative net short position have increased sharply to a record levels probably in a hope that Japanese PM will announce economic stimulus package on Oct 01 that will include corporate tax cut, VAT etc. Bottom line is more liquid YEN market. This may sound good to ears, but I will not be surprised to see sharp JPY recovery, as buyer of Japanese currency could flock in to find Yen attractive.

Yen could initially hold around 97.40-50 levels. Break of 99.80-90 is required for a move towards 101.05. I see risk that failure to move beyond 100 would challenge for test of new lows and will not be surprised to see new lows. Range for the week 96.20 – 101.50.

AUD @ 93.12 = Aussie buying on dip is possible. Chinese data on Monday could drive the currency. Support 0.9420-50 should hold or else 0.9170. However, I am looking for another test and break of 0.9410 for 0.9450 or 0.9510-20. Range for the week 0.9210– 0.9580.

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.