Monday Jan 13-17

Asad Rizvi

Weak US Non Farm Payroll (NFP)data was a biggest surprise of the the week that fell against expectation by almost two-third to 74.000, slowing sharply and hitting 36-month lows, confusing many market participants about FED's latest monetary policy stance. They may have started believing that the growth is not projecting true picture of the US economy. Interestingly unemployment data, which is focused by FED, as a benchmark tool for tapering purpose improved by 0.3 pct to 6.7 pct getting closer to the FED target of 6.5 pct

Winter is partly blamed as one of the cause for weak NFP. Some of the reports suggest that fewer people have been applying for jobs and few suggesting that old old could be an added factor. If winter is the bigger cause then in January, so far the cold snap has been harsh too, which could mean possible drop on January NFP too. 74.000 is a very low figure and it is also possible that in such sever cold condition was not proper gathered. Hence, I will not not be surprised to see upward revision next month.

After going through various comments, which is mixing up with emergency unemployment insurance or debt with FED stance, it is important to understand that they are two separate Fiscal and Monetary issues. It should be clear that Fed has nothing to with the governments fiscal stance. 

What is more important from Fed's point of view is that the overall economic expansion is at a desirable pace. The signs are obvious that economic recovery is likely to gather momentum in 2014. One of two bad months is not the policy decider. If we go through the FED members speeches, they seemed least bothered about drop in NFP and are much focused on growth. Therefore, as soon as we get news of more positive data, there will be shift in market sentiment. Healthy data will encourage FED to increase in the reduction size of its bond purchase. Poor data may see continuation of its $ 75 billion monthly bond purchase for couple of months, but I do not see any reason for continuation or increase in the bond size from $ 85 billion.

    

GOLD @ $ 1248 = Gold rallied back on Friday after weak Payroll data. But this upside rally will be short lived, as strong US data in coming days will negate upside move. I do not see any reason for unusual rush for gold and seller will once again get good opportunity to pick the top. 

On Monday morning, I am expecting Gold gold to make further gains to test $ 1255-60 zones. However, I see no reason that will help to push gold beyond $ 1265-70 levels during the week. On the downside, $ 1235-36 will challenged, break of $ 1228-30 risks for $ 1215-20. If moves up, $ 1278.

EURO @ 1.3669 = Last week's ECB's policy announcement was quite in line of my expectation with no major change, but certainly tone turned more Dovish. I have often discussed in my various post that flow money is surely towards Euro-zones, but this it not being utilized to stimulate economy. The real problem is that there is no credit expansion and tightening impact due to maturity of earlier borrowing by banks is increasing the cost of lending, which is in negation of ECB policy stance. All the German  hard work is not enough for the rest of the Euro-zones region, which has loads of problems. Germany economy also relies on foreign growth, as it cannot solely grow on domestic demand, which may not be sufficient to match the needs. Therefore, European currency is still faced with certain risk, as it is too dependent on availability of Central Bank's liquidity for Capitalization an lending. Credit expansion is a must to ease job condition in the Euro-zone region. European recovery may sound music to ears, but challenges are uncountable.

Euro gains should exhaust around 1.3750-80 levels and only only move beyond would risk for more upside move, which is not favored. Fall below 1.3570 will open gates for more losses and a move below 1.3510 will encourage fo deeper fall towards 1.3420-50 zones.

GBP @ 1.6481 = UK Data released last week was disappointing due to soft PMI and wider deficit and this week too poor release of retail sale and inflation data could add pressure on British currency. Pound has strong resistance around 1.6495-00 and needs to clear convincingly to test 1.6570. However, I see increase in risk for fall on break of 1.6350 that could push GBP towards 1.6180-20 zones.

JPY @ 104.17 = In the absence of stimulus package, Japanese Yen is too dependent on two factors, Nikkei and US 10-year bond yield. There is a risk for deeper JPY correction as long as 105.20-50 support levels hold. A push below 103.10-20 will encourage to attack 102.40.

AUD @ 0.8994 = Aussie could push higher and has 1st support around 0.8920 with major at 0.8850. Move beyond 0.9020 will encourage for 0.9090, but should soon exhaust if moves higher around 0.9110.

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.