Monday, November 25-29

Asad Rizvi

By the end of the week, market focus shifted from US economic performance/policy and tapering talk to Europe after ECB President Draghi made an effort to end market speculation about the chances of negative deposit rate by punishing Commercial Banks not lending to consumers and parking their funds with Central Banks.

Earlier in his press conference on Nov 7, Draghi spoke of possible softer stance defending his easing policy by adding that the purpose of recent cut was sort of precautionary measure to defend inflation from further side.

ECB’s rate cut decision is faced with severe criticism from German media accusing ECB policy for helping Southern part of Europe, as they believe that the idea of negative deposit rate could backfire without serving the purpose. Depositors/Savers could be the end looser as bank instead of taking the hit could pass the negative return/cost to their respective customers.    

Meanwhile, looking at the developments in USA, Fed may have taken the right decision to delay tapering due to risk of default caused by shutdown, but I still believe that the recent statements by the FED official’s hints that they are under immense pressure to start reducing its bond purchase program, as it has become too costly that possesses huge risk to the economy and not producing the required result.

Therefore, FED is simply looking for an appropriate reason/timing to act and this is one factor that recently we have seen shift in the stance of FED representatives and they sound less Dovish. Last week, Lockhart a FED official though not a voting member has clearly said that tapering should be on the table, he further added that it should not necessarily begin in December. Normally such messages are conveyed through senior and responsible officials.

Furthermore, the ongoing debate on tapering is done with a purpose to mentally prepare the market. The only fear, which is tough to guess/calculate, is what will be the market reaction and the repercussions after the announcement that will depend on the size. Hence, unwinding the whole lot will be the most difficult part to conclude.

This could be choppy in thin market condition due to Thanks Giving Holiday and month end and next week we could be heading for another exciting week as payroll factor due to be released on Dec 6, will dominate the market moves.  

GOLD @ $ 1242.30 = Gold, which is witnessing continued sell off on the rise is unable to retain its lost strength and often find sellers on the up. Demand for gold is on decline and the metal got further blow last week after Swiss government’s decision not to hold minimum 20 pct of gold as asset that may have prohibited SNB from selling gold. The argument for disagreement was based on facts that it would have restricted constitutional independence of Swiss Central bank (SNB) that would have hindered SNB’s Monetary Policy decision, as gold has no connection with price stability and proportion of gold on SBB’s Balance Sheet.

Gold is likely to remain under pressure, as selling interest should dominate. Gold should cap below $1265-70 levels and only breakout will risk for test of $ 1295-98 zones. However, next support is around $ 1220-25 levels. Break will encourage for test of psychological $ 1200 levels.  

EURO @ 1.3555 = Positive release of data specially from Germany and Draghi compelled to make a statement after facing heavy criticism from German media to tone down his earlier European slowdown concern helped Euro’s recovery. Earlier mildly Dovish stance by Yellen during her nomination appearance in front of Banking senate Committee is also weighing on US Dollar. But in comparison Europe has more economic problems, as compared to strong German growth, which could disturb German celebration, since overall Euro region’s economy is faced with bigger challenges.

Euro could benefit, as technically it closed above 1.3480-90, which remain a strong support level and only break would challenge 1.3420-50 zones. However, this rally will find resistance around 1.3590-00 and may exhaust around here, though break will encourage for a test of 1.3640-80 zones. Range for the week 1.3420 - 1.3680.

GBP @ 1.6220 = Investors confidence has helped Cable to main its strength, but the challenge lies around 1.6270-90, which could be tough to crack for another 100 pip gains. Support around 1.6110 is key levels to watch break will encourage further losses to test 1.6050 or next major support around 1.5970. Range for week 1.5970-1.6380.

JPY @ 101.26 = Though I am not sure that how much role Japanese economic data will play in its next move, but since Japanese officials talk a lot about inflation, release of CPI, which is expected to rise may have some role to play on Japanese currency, as weak data will demand for more accommodation.

However, one major area that needs to be focused sharply is the inverse relationship is between JPY and Nikkei. The strength of Japanese Stocks is one of the causes of its currency weakness. There is risk for Nikkei to exhaust that has been on the up since quite a while. Weak Japanese stock market would mean shift from Nikkei to JPY.

It may not be easy to surpass 101.80-00 levels and break will only encourage for 102.50. If JPY could gain beyond 100.40-50 levels 99.70-80 will be challenged. Range for the week 99.80 – 102.60.

AUD @ 0.9163 = Australian Dollar prone to economic events in China was hammered after poor Chinese economic data. It was further clobbered after RBA Governor showed his uneasiness about the currency and therefore AUD may take small breather before making downside attempt, unless there is domestic recovery or external support for the Aussie.

AUD has strong resistance around 0.9260-80 levels and only break will encourage for 0.9350. However, risk for fall will increase on break 0.9010-30 levels for 0.8920-50. Range for the week 0.8920– 0.9380.

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.