Asad Rizvi
After
impressive US Non-Farm Payroll data and Unemployment falling to 7 pct, there is
certainly strong case to argue that FED should start tapering, as unemployment
is only half-percentage away from 6 ½ pct target rate. Recent US economic
performance goes in favor of US Central Bank’s bond purchase plan to reduce the
amount.
It
is evident that the labor participation is up averaging over 185.000 this year,
earnings are up, and confidence in the economy has improved as consumers are
looking confident. Earlier we saw sharp surge and upward revision of US GDP.
US
mortgage rates are already hinting that the recovery has surely accelerated,
though share market is showing unusual resilience and did not react to the tapering
threat probably sensing that corporate profit will rise due to improving
economic conditions. But do not be too optimistic about the share market growth
as FED tapering also means withdrawal of cheap liquidity that should have
adverse impact when implemented.
Friday’s
reaction to the US jobs data was very unusual, as there was no positive re-action
to the US unemployment data. Market chased trend by avoiding economic factor. US
bond market is the best example, as 10-year bond yield after a brief surge,
fell back to 2.86 pct. Allan Greenspan once warned that “when the bond market begins
to move, FED might not be able to control it”.
In
my view, we could soon be heading for a sharp move. What may have stopped US Dollar
gain is the absence of FED official’s statement on the recent US economic
pick-up. In recent past we have seen them defending tapering against jobs condition
and growth, both have showed remarkable recovery.
The
biggest challenge for US Central Bank is that it has to seriously consider start
easing up its conventional and controversial stimulus program that is pumping
USD 85 billion a month. Further delay will question FED’s credibility, as it
has earlier in June declared that it may end up tapering by March 2014 based on
fundamentals, which is as per projection, since unemployment has hit 7 pct and
GDP is on the rise. Housing market continues to flourish.
Furthermore,
all indications are that next month’s economic data will show better economic
performance due to holiday season that should inflate demand. Therefore, there
is no reason to further delay tapering. If FED is no rush and decides to continue
its bond purchase program, then it should tell the market that why it is misguiding
by deviating from its earlier (June) announcement when it is meeting its target
and why is Fed unable to implement tapering. Low inflation was never its target
and this could be a lame excuse.
It
is very surprising that the Dovish FED officials have once again failed to read
the US economic trend correctly and have been constantly trumpeting fearing economic
slowdown and needs for more liquidity injection. So far estimates are FED has
injected nearly USD 3 Trillion.
While,
earlier on Thursday, the unexpected did not happen as ECB went for hold, but
following monetary policy announcement in his press appearance ECB President
Draghi answered with confidence, despite European Central Bank struggling for economic
recovery and making poor future projection for the Euro-zone region.
Euro
to my surprise did not weaken despite hint if slowdown in European and good
economic recovery in USA. I still believe this could be false up move. If
market believes that tapering and early rate hike is priced in then this is wishful
thinking because once tapering is announced, no matter whatever may the size,
market will become nervous and jittery. Remember this is not going to one time
tapering, liquidity injection will gradually halt that has many strings
attached. One hitch that may have hindered US Dollar’s rally could be the
legislative factor that has deadline date for a Budget deal of December 13.
However,
keep a close watch on emerging markets that should show signs of nervousness,
as prior to any move its stock market will once again start melting and
currencies will come under pressure and do not trust US bond market as holder
of US treasuries could soon start losing its patience. More importantly, this
time speeches from FED official should provide the real lead.
GOLD @ 1229.70 =
As
per expectation gold did not break the upper band of my target. Tough it had
tested new lows of the week before making small recovery by the end of the week,
which does not look sustainable. Unlike currencies, gold is presently too
dependent on cheap liquidity in the absence Central Bank’s buying speculative
buying. Gold will certainly take beating in the coming weeks, as weak demand
for the metal should add to the selling pressure. Therefore, any upside move is
considered a good opportunity to sell.
Gold
should hold below or around $ 1245-50 levels and only break risk for a move
extending towards $ 1258-60, which is not a favored scenario. However, a fall
below of $ 1208-10 may challenge $ 1193 and break would risk for $ 1158.
EURO @ 1.3702 = The up move is
not unexpected as Euro has reached the top of my weekly range. Only break of
1.3740-50 risks for extension of rally this week towards 1.3825. I am expecting
this move to exhaust soon and will not be surprised it does not reach the top
as my given range. Break of 1.3650-60 will threaten test of support 1.3610. A
fall below this support line will encourage for a dip towards 1.3540. Range for
the week 1.3410 - 1.3825.
GBP @ 1.6346 = If GBP fails to
break below 1.6220 levels there a risk of another test of 1.6440-50 zones and
this rally could even stretch up to 1.6510. However, if it fails to move beyond
1.6420, Pound may not be able to avoid downside. Range for week 1.6140-1.6520.
JPY @ 102.83 = Japanese currency
may challenge any move beyond 103.25 and only break would risks for a test of 103.60-80
zones. A break of 102.05 is required to test 101.35. Range for the week 101.10
– 103.80.
AUD
@ 0.9101 = Initially I am expecting Aussie to make
gains and should hold 0.9050-70 levels for a move towards 09150-80 levels. Only
break here could see a move extending towards 0.9220-50 before exhausting. On
the down side strong support is around 0.8980-00. Range for the week
0.8950-0.9250.
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.
australia should buy 90.70?
ReplyDeleteAUD @ 0.9084 = W e have seen Aussie failing to move beyond 0.9130-40 levels.
ReplyDeleteI think now it is likely to trade in 0.9040-0.9010 band and could still dip, but should hold 0.9010-20 levels............
gbp where you prefer to buy ?
ReplyDeleteGBP @ 1.6358 = Unless clears barrier 1.6375-80 there is risk for another test of 1.6320-40 zones..........
ReplyDeletesir euro should go short trade balance data negative ?
ReplyDeleteEURO @ 1.3718 = Not negative, it fell by Euro 1.2 bio against target of Euro 18 billion. But despite fall Euro has so far gained 25 pip. I would prefer t sell around 1.3730-40 zones. Stops 1.3780..........
ReplyDeleteGBP @ 1.6383 = I would prfer to sell around 1.6395-00. Stops1.6435.........
ReplyDeleteAUD @ 0.9080 = Sell AUD around 0.9090-00. Stops 0..9135........
ReplyDeleteany think in gold
ReplyDeletemanish, I am not convinced at current levels. Market is still looking for direction. We may see a test of $ 1234-36 levels will consider selling then......
ReplyDeleteHope you are still holding........
ReplyDeleteEuro Sell @ 1.3730
GBP Sell @ 1.6395
AUD @ 0.9090
Unfortunately there is hardly any movement.
However, view reiams unchanged.....
sir euro data all comes negative retail sell still up sir any reason ?
ReplyDeleteThe inflow in Euro-zone is healthy.
ReplyDeleteCB's are buying for portfolio.
ECB may not cut rate rates for sometime.
In my today's weekly post I have mentioned that one reason that could have hindered US Dollar’s rally could be the legislative factor that has deadline date for a Budget deal of December 13.
More imporatantly, market awaits for clue from FED member speeches...
GOLD @ $ 1234 = Ok, hope you have sold around $ 1235. Stops $ 1241............
ReplyDeleteOk, it was almost a dead day in terms of trading.
ReplyDeleteI would prefer closing all positions or if you wish to hold, do apply Stops.
Cheers until tomorrow....................