Asad Rizvi
FED
policy announcement was the major event of last week. It did not give any
surprise, as it avoided altering the language from its previous monetary policy
statement and did not commit to reduce its monthly bond purchase of USD 85
billion. Instead it added a positive note with a firm tone about US economy,
pointing that the US economic recovery is moderate.
In
my previous weekly post, I did mention that the problem faced by the US Central
Bank is that it has been maintaining easy monetary policy since 2008,
purchasing bond through liquidity injection that has inflated the size of FED
balance sheet to USD 4 Trillion. There has to be a stop and in return,
injection needs justification at same proportion.
The
two FED officials that spoke on Friday did not sound Dovish as they were more
concerned about inflation picking up, which also gives hint of change in over
sentiment.
The
overall conclusion is that FED seems eager to start reducing its asset purchase,
but it may be fearing risk that even small amount of tapering could trigger negative
sentiment, which needs to cool down a bit.
This
week sentiment could shift towards Europe, after drop in inflation rate. There
is a desperate need to push growth rate higher and to create more job opportunities.
German growth is OK, but may not be enough to maintain stability, as growth in
remaining part of Euro-zone region is still low and alarming. ECB may be forced
to offer stimulus package.
I
have frequently argued and show my reservation about the strength of European
currency, which does not suit European economy, because strong EURO makes
European goods less attractive and current European growth is not sustainable
because banks are not lending on constantly to expand the base of business. European
bank are still faced with liquidity issue, Bank Capitalization problem has not
been resolved.
European
inflation that unexpectedly fell down below 1 pct should provide space to Draghi
in his press speech after monetary policy statement may talk of forwards
guidance or could hint of discussing rate cut if there is no surprise rate cut.
LTRO discussion could also be part of his agenda. If he does not talk of the
issues he will surely be challenged in this press Q&A session.
However,
despite all the drama and economic distortion about US economic report, focus
will not shift from developments in US, as this week US non-farm payroll, an
important US economic barometer will be released on Friday. Weak jobs data is
already priced in by the market, better than expected numbers will surely help
Fed’s stance on tapering. US quarter 3 GDP data will important economic number
to watch.
GOLD @ $ 1315.50
= This
week gold is likely to remain under pressure as $ 1330-35 will pose challenged
if tested, which is not a favored move. However, risk is on the downside, as
break of $ 1295 will extend losses towards $ 1275-80 levels, with next major
support at $ 1250-55. On the up resistance would be around $ 1345-50.
EURO @ 1.3485 = The fall is
sharp and deep. Euro needs to push beyond 1.3525 for a move towards 1.3590-00
zones or 1.3640, which is a major resistance levels. However, initially selling
pressure is likely to continue and fall below 1.3410 will open gates to challenge
1.3350 or possibly 1.3280. Range for the week 1.3240 - 1.3640.
GBP @ 1.5923 = Cable after
strong 3rd quarter performance has lost its upside momentum due to
weak release of recent economic numbers. Market will once again start
concentrating on growth in manufacturing, industrial and housing sector, which
is the backbone of the economy and could suffer if fails to recover.
Cable
has strong resistance around 1.6040-50 and break of this levels is required to
test 1.6150. GBP could come under pressure and if 1.5840 breaks, it could potentially
challenge 1.5780. Range
for week 1.5750-1.6180.
JPY @ 98.61 = Japanese
currency will continue to trade in a narrow band unless it breaks major support
of resistance level. The currency will give strong resistance and may not
surrender 97.40-50 support zones. A move beyond 98.95-00 will help to test 99.30-40
zones or probably 99.80 levels. Failure to surpass initial support levels will
encourage JPY to regains its lost strength. Range for the week 96.80 – 99.90.
AUD
0.9439 = Care is suggested as Aussie may find support around
0.9350-70 zones for potential correction and move towards 09550-80. Only break
will encourage for 0.9630. However, failure to hold support levels would see a drop
extending towards 0.9280. Range for the week 0.9250– 0.9650.
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.
GOLD @ $1316 = Pick top & Sell around $ 1316-18. Stops $ 1322............
ReplyDeletesir shall short euro at 1.35 and gbp at 1.5940!! or wait!!
ReplyDeletePrefer Selling Euro around 1.3500-10. Stops 1.3535..........
ReplyDeleteGBP@1.5939 = I would wait as potentially it could test 1.5960-90 zones.........
Cable view is unchanged unless breaks 1.5910...........
ReplyDeleteEuro @ 1.3510 = View hovering around top...............
ReplyDeleteHold gold sale @ $ 1316 & wait for next signal.................
ReplyDeleteHope you are not waiting for GBP signal. It has already tested highs of 1.5966.
ReplyDeleteMay struggle to move beyond 1.5980-90..................
GBP@ 1.5963 = Do not sell Cable as more gains possible.......
ReplyDeletesir where to apply stops in gold!!
ReplyDeleteBreak of $ 1322-23 risks for $ 1328.....
ReplyDeleteGOLD @ $ 1319 = there is minor risk that gold could test $ 1323-25 before down again, s it is hold above $ 1315...............
ReplyDeleteGOLD @ $ 1319 = I will not be surprised to see sharp fall.....................
ReplyDeleteAsad Sir, any chances of euro recovering?
ReplyDeleteSafil my answer is oo. I do not see Euro making big recovery unless ECB sound less Dovish or avoid talking rate cut, easing or LTRO. While, FED seems getting closer to tapering. economic distortion due to slowdown could be the only factor that is causing delay or else FED would have announced tapering in my view.
ReplyDeleteTherefore, all signs are pointing towards weak Euro atleast until ECB Thursday MPS.
My weekly outlook will provide you the technical guideline on currency move.
Ok pals, overall a very dull Monday, as usual
ReplyDeleteSuggest sqauring all positions.
Cheers until tomorrow.............