Tuesday, September 24

Asad Rizvi

The pace of US economic growth and jobs data is once again in limelight, as FED speakers have taken up podium to express their point of view, some in favour and some against. No one (Fed Speakers) is taking about flow of money that where is the monthly USD 85 billion printed money in the name of quantitative easing (QE) is being diverted. If the purpose of QE money is to stimulate economy then why some of the economist/research work argue that over 80 pct of the funds is sitting idle as excess reserve with private banks. 

Since August 2006 banks excess reserve surged by over USD 1 trillion to nearly $ 1.9 trillion suggesting that the money is not properly allocated to the corporate sector for new loans or to encourage consumer business. Of the remaining nearly 20 pct of the money, only tiny part is allocated for lending to businesses and major part goes to maintain reserves. Someone should question FED speakers/members that is this intentional and part of FED policy, because when it pays better return on funds deposited by banks, then why would bank increase customer exposure on a clogged balance sheet, unless such an environment is created that the banks are forced to participate aggressively and increase credit volume. One way of doing this is by reducing the return to banks that borrows QE money from FED.

Meanwhile, despite Merkel's win, release of economic data showing growth in Euro-zone region in September and positive Chinese PMI, market has reservations and is cautious about the next move, which is caused by last week's FED policy decision, financial market probably wants more clarity. 

One major factor that may have caught market by surprise is Draghi's concern about rising short term interest rates. He is neither happy with the pace of growth probably aware that though the trend is up but is not sustainable in near to long term. He even warned of using his monetary tool, another LTRO if necessary to bring down short-term interest rates to the desired level. Europe is also faced with similar problem low credit volume hindering real growth. 

GMT 3:26 - EURO @ 1.3493 = Since we are stilling below 1.35 levels, minor risk is for a test of 1.3470-75 zones, should hold or if surrenders  1.3440 is the key levels to watch below 1.3410-20 could be threatening. However, I still see a possible test of 1.3525-30 zones. Break will encourage for a test of 1.3550-60 levels. 

GMT 3:38 - GOLD @ $ 1326 = Small up move in Asia is possible and could test $ 1330-33  levels before exhausting or else break would risk for test of $ 1338-40, which is not a favoured move. Fall below $ 1320 will encourage for test of $ 1310-15 zones.

GMT 3:49 - GBP @ 1.6030 = Failure to break 1.6050-60 levels risk for a drop to test 1.5980-90 zones possibly 1.5950 or else Cable will test 1.6090.

GMT 3:55 - JPY 98.77 = Japanese currency could make gains as long as 99.20 holds for a move towards 98.30-35. Break of 98.05 risks for test of 97.70-80.

GMT 3:59 - AUD @ 0.9413 = Aussie should hold above 0.9370-80 for another upside test, but needs to break 0.9445 for test of 0.9465-70 or else 0.9350.

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.