Asad Rizvi
Bernanke fulfilled his June 19 commitment to begin taper of its
bond purchase by end of this year if the economy continues to improve.
Interesting since then until FED’s December 18 announcement, there was fierce
discussion/battle between the Hawks and the Doves on the tapering subject with
Doves mostly vocal and forceful and demanding considering delaying, as they
were not convinced about consistent US economic performance and saw risk to the
economy. Hawks were not as aggressive and in the end proved to be correct in
their assessment about economic gains, as FED has announced to begin scaling
down of its bond purchase from January 2014, though in small amounts.
There was a reason for Doves to be too vocal on the subject that
may have helped to consider small cut in bond purchase. Dove’s supporters,
other than FED members are basically the elite borrowers that have the excess
to borrow and have been enjoying hefty profit against cheap funding facility made
available to them since last over 5-years that did not benefit the economy as
per expectation. Instead last week it had put FED in more awkward position by
inflating the size of balance sheet to USD 4 Trillion that will continue to
increase in size unless monetary stimulus completely halts. It will never be
easy to shrink FED Balance Sheet.
So far financial market did not react to the tapering news that
will become effective next month. FED announcing that it will start tapering
its stimulus means that it ultimately plans to deviate from its unconventional
methods and hence, market will begin to perform in line with the economic
fundamentals and here lies the big challenge, when injection of liquidity is
reduced and then totally stopped.
Tapering will surely impact risky assets due to position
adjustments. It is bad news for the Bond market, as rising yield will also hit
all income related instruments. This can especially bring shockwaves for the
emerging market and its bond market could badly suffer. It will also lead to
unwinding of all carry trade businesses.
During extremely easy monetary policy stance, there is one large
segment of the society in majority that suffers most for wrong reason and they
are savers that have to subsidize government borrowings and have to pass on the
benefit to business community. But unwinding of Treasury Bonds will surely
bring relief for the savers in a hope that they will soon get relief from
negative return.
Though in coming days/weeks/month’s market will be watching FED
stance and the language used for future guidance, but the financial market will
start concentrating towards economic performance that will be based on fundamentals.
Since FED’s forward guidance has provided clear indication that its policy rate
will remain close to present levels for next couple of years. Hence, market
will be more focused on yield curves, as risk of low inflation and tapering means
steepening of curve or increasing of gap between short-term against long-term
treasury instruments. Availability of liquidity will be another key factor that
will play major role to determine future market direction.
GOLD @ 1202.65 =
Before
I make a comment on gold, one thing is for sure that we are heading for a
choppy year end due to holiday season, thin market condition and year end
closing. Desperate bears will make every effort to push gold higher, but I consider
such up move as opportunity to sell, as gold has no major fundamental and economic
support to trade at higher levels. Last week gold made perfect move in line of
my forecast to cap below $ 1240 to breaching my weekly target $ 1193 briefly before
inching up towards $ 1202.
This
week a similar move is expected, but I am expecting fall to extend if holds
below $ 1215-20 levels or else gold could move towards $ 1235-40 zones. It
needs to fall below $ 1185 for a test of $ 1170-72, with $ 1148 another important
support level.
EURO @ 1.3669 = The current strength
of European currency is largely based on extraordinary economic performance by
the Germany that countered S & P downgrading of European Union, which
consists of 28 member states, as most of them has weak credit conditions. Euro
neither succumbs to strong US GDP data. The other big factor supporting Euro is
large maturities of LTRO, which is draining of liquidity from the European
Banking System helped to reduce the size of ECB balance sheet. Overall it has
been a good mix for the currency to maintain its continued strength.
This
week Euro will have to move beyond 1.3720 for 1.3775. However, Euro may find
selling interest on the up and on the downside needs to break 1.3610 for a test
of crucial support level of 1.3570-80, but will find buying interest on dip. This
is why European currency is likely to trade in a narrow range 1.3540. Range for
the week 1.3520 - 1.3810.
GBP @ 1.6327 = Signs of robust UK
growth is obvious though recent manufacturing data and deficit showed some hint
of slowdown. Overall mood remains Bullish, despite BOE showing discomfort with
strong currency was taken seriously by the market. Unless there is more bad
news for Cable it will find buying interest on dips.
The
levels to watch is 1.6250-70, which may hold for another upside or could 1.6180
levels before up. However, a move beyond 1.6380 may encourage for another test
of 1.6220-50 zones. Range for week 1.6180-1.6450.
JPY @ 104.07 = JPY could move
to test 104.50-60 zones, but suspect Japanese currency will weaken beyond 105.
A move toward 103.20 could be a possibility on break of 103.70. Range for the
week 102.50 – 104.98.
AUD
@ 0.8919 = Aussie may find temporary floor around 0.8820-50
and only break of this level risks for 0.8750. Break of 0.8809-90 will pave way
for 0.9040-50 before correction is over. Range for the week 0.8750-0.9080.
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.
My view on Gold........that was countered by James Nassir.............
ReplyDeleteWhy this is not the right time to buy gold, because we are living in peaceful world. Iran issue is over for next 6-months. The world is overcoming the financial crisis. European Currency does not face threat. ECB Balance Sheet has Shrunk by nearly 25 %. Global Central Banks are not buying in haste to reduce their Currency exposure. Chinese growth of over 10 % for 3-DECADES Fizzled out, now they are faced with Liquidity problem. Indian Gold buying has dropped by almost half. FED is in unwinding process. Inflation in Developed Economies is too low. Then why Buy Gold ?
My target is $ 1000 & the $ 800.
You will find here http://asadcmka.wordpress.com/
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James Nassir 1 hour ago
@asad rizvi Asad, you have it backwards on the Euro connection to Gold price ! The strong Euro makes DXY weak, which thus increases the price of Gold priced in U.S. Dollars ! The Indian Gold buying has dropped officially, but it has been widely reported in the media that smugglers are now circumventing the restrictions, thus mitigating the India Government attempt to reduce their Gold imports; after all, a young lady has to look presentable at her wedding as per long-standing Indian traditions ! Gold bottomed at about $800 in the depths of the Great Panic; so contrary to your statement, the financial crisis is not bullish for Gold price ! China's demand for Gold is now the greatest of any nation in the world, at over 1100 tons per year, which is 44% of world-wide annual production ; this is partly because it is becoming very fashionable for the well-to-do Chinese couples to flaunt their wealth with purchases of Gold Jewelry ! So despite China's mere 7% GDP Growth Rate vs 2% for USA, China's Gold imports is now rising dramatically ! Ms Yellen will implement her "Optimal Control" policy when she becomes the new FRB Chairperson, wherein she will decrease the FRB Discount Rate and also the Fed Funds Rate to create a robust Jobs Market and thereby drive up U.S. Inflation "somewhat above" 2% with the likely assistance also from an increase in QE3 monthly U.S. Bond purchases because the week-ending 12-22-13 did see a sharp rise in Unemployment Claims, and also the Empire State Index and Philly Fed Index were well below expectations ! Moreover, contrary to your statement, there are several severe Geopolitical tensions in the world as follows: (1) Israeli PM Netanyahu vehemently rejected the U. S.-Iran Nuclear Deal, and also strongly ridiculed the new Iran President in a long UN speech citing his counterproductive past performances, (2) Japan vs China over their disputed Islands , (3) Saudi Arabia arming of the Syrian Rebels to combat Pres Assad, and the Saudi Arabia strong dissatisfaction with U.S. policy towards Assad which has effectively thrown the Rebels under the bus to the Saudi's government way of thinking !, (4) etc.. . Dec 22, 2013 at 11:02 pm PST.
My Reply.........
ReplyDeletehttp://www.marketwatch.com/story/gold-falters-again-after-25-drop-last-week-2013-12-22
@James Nassir @asad rizvi James Nassir, I do not believe in correlation to GOLD/USD. Indian buying of gold though illegal channel has nothing to do with official RBI FX Reserves these are two separate issues. Indian official buying from $ 62 billion annual is down by almost half 40. You are not well informed as $ 20-25 billion worth of gold cannot be smuggled through Indian border. Gold bottom at $ 800 is your perspective that cannot be guaranteed. People were talking gold hitting $ 3.000 & then $ 5.000 proved to rubbish ask all those still sitting long gold @ 1800-1900. China is smart as it was not digging its own gold & opted to purchase from foreign market for its FX Reserves & for Domestic consumption. It is faced with sever liquidity problem and they will not goof up like Japan, USA, UK & Europe to print notes. Yellen is no more a voting member she has a responsibility & will be answerable for all the financial adventurism. She proved everyone wrong when FED went for Tapering, so time will tell who is right. Lets keep Iran on the sideline for next 6-months. Do noty worry about China/Japan dispute. China is not USA and hence, will not behave like a big daddy. Forget Syria, Putin has proved smarter than the Western world leaders, it more to do with Russia than Saudi Arabia/Turkey/Qatar/Iran. I think you are not well aware of the Middle/Eastern politics. Demise of Syria means end of Russian gas to Europe.
Basically the crux of the matter here is watch if FED is able to unwind and reduce the size of its Balance Sheet from $ 4 Trillion. ECB has succeeded by reducing the size by nearly 25 pct whereas FED's Balance Sheet has grown by nearly 37 pct.
Finally who cares that cost of gold production is $ 1300/- when the metal is not worth !
Worth Reading and understanding the real picture
DeleteExcellent
i think sir u r correct hope these will happen according ur thoughts because much think is clear now to take gold 800 thank u for urs guide n sir now for today what do do in gold selling ids prefffered n at what level or wait
ReplyDeletemanav, I am cautious because we are in a thin market. If caught wrong footed, it will be hard to get out of trap.
ReplyDeleteI will provide signal when I am comfortable, as I do not want a tough begining of the week and spol the year end. So patience is request..........
Moeen, where have you been. I hear from you after quite a while.
ReplyDeleteBest
Sir
ReplyDeleteI am on Winter vacations with family.
Trading a little only
But read your views daily
Thank you sir
Good to know your welfare. Enjoy your holidays........
ReplyDelete1.3700 should go for short euro/
ReplyDeletesir what about gold still nothing
ReplyDeletepd, if you were keen to trade then you should have bought Euro for 1.3710-20. top is the prefered selling level
ReplyDeletemanav, if keen then level is $ 1190-1210.........
ReplyDeleteOk pals, tomorrow DEC 24, is going to be almost a dead day, as UK & USA is working half day and rest of Euro is close. DEC 25 is a holiday.
ReplyDeleteHopefully I make next post on Thursday, Dec 26..........
Happy Holidays.............
Cheers until then...............................