Wednesday, December 11

Asad Rizvi

US Budget deal should provide relief to the US financial market and specially FED. In my view, it was one of the of the major cause of worry, which I had mentioned in my weekly post that was not discussed at length, as tapering talk was the dominating factor, but market was well aware of the issue. Bernanke in his last appearance in front of the Banking Senate Committee specially mentioned about fiscal difficulties. This deal that will slash spending and help in reducing deficit over a period of time will surely provide government and FED some breathing space.

Meanwhile, though no one is sure about the FED's mood on its bond purchase stance. I do not see any reason for FED to hesitate to start reducing its bond purchase, as they are back on target. Reaction shown by US Stock market and bond market players does not necessarily mean every wish will be fulfilled. It is purely a policy matter that will be decided by the FED officials.

While, market trying to find more clues about FED's next big move. The moves seen in foreign exchange market is still very surprising, as quite a few Fx traders are baffled with the weak US Dollar behavior. It is obvious that when all odds are in favour of USD then why Greenback is unable to make recovery. Specially the strength of Euro against USD is confusing the market, as European economy is still faced with numerous challenges. 

The worrying factor is that recent German data has started showing signs of exhaustion, whereas other major European contributors are still in a struggling mode. I can gauge few factors as flow of fund in the Euro-zone region is healthy. Market reacted to anther cut, which was not due so soon. ECB is only comforting the market with the possibility of another LTRO, which could be possible if banks are willing to expand credit through lending. Remember LTRO means excess availability of liquidity in the system, which is not made available. 

However, despite all the facts it is not easy to fight against the market trend, but I still do fear a plunge in Euro & GBP from top, which is yet to be determined that will not be seen for long. I would give another 100 pip upside margin as I cannot go against the market forces, but stops should be followed religiously, as fall could lead to a trap.

Gold is a different story, which is managed by hedge funds/investors rather than demand from any other source, as neither Central Banks are aggressive buyers nor Bulls can play their trumpet about India and Chinese growth, as growth in two of the most populous economies is down by more than 3 pct from all time high. The Geo-Political situation has vastly improved, so there is less tension around the globe. European currency is no more cause of concern. Hence, they are fully trapped, trying to average their buying and once tapering begins then I do not see any reason that why gold should not fall below $ 1000 levels in 2014 to probably $ 800 levels later.   

GMT 3:19 - GOLD @ $ 1257 = There is no change in my Bearish view for gold despite yesterday's up move that stretched beyond my weekly target of $ 1260. I am not expecting big surge in gold though in Asia another round of buying is possible, as gold should hold above $ 1250-52 levels for possible test of $ 1265-68 zones. Beyond the levels to watch will be $ 1275-78 that should not surrender. Break of $ 1240-45 will be extremely bearish for gold.

GMT 3:29 - EURO @ 1.3751 = Euro may hold above 1.3710-25 levels for another attempt and test of 1.3790-95 zones. Clear break is required to test 1.3825-30 zones, which looks difficult right now. Break of support levels will encourage for a test of 1.3670-80 zones. However, unless Euro falls below 1.3640, it likely to make an upside move to test new highs.

GMT 3:40 - GBP @ 1.6440 = Pound may still find buying interest on dip and may hold 1.6400-05 levels for possible upside test. Break of 1.6470-75 will push GBP towards 1.6495-05. Or else 1.6360-70.

GMT 3:44 - JPY @ 102.67 = JPY still looks threatening and if fails to hold 102.48-50 levels, this gains could stretch up to 102.30 unless clears 102.95-00 zones. 

GMT 3:46 - AUD @ 0.9134 = Support 0.9101-05 should hold for a test of 0.9175-80 zones. or else 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.