Monday Feb 10-14

Asad Rizvi

Cold weather is surely responsible for recent economic slowdown in USA that has halted the surge that we saw in previous quarter adding fewer jobs in last 2-months. This is not an unusual economic condition that will stop FED from reducing its stimulus plan, as on the positive side average hourly earnings have increased and labor participation has increased. 

Market will now focus on Janet Yellen's next week testimony on economy and FED's monetary policy stance. She is due to appear before House on Tuesday and Senate on Thursday in her 1st semi-annual monetary policy report to Congress and as the unemployment rate approaches 6.5 pct threshold, with unemployment reaching 6.6 pct, she may have to disclose or talk about FED's next plan/intention, which should be key point to note. She will emphasis on her successful accommodation policy stance and talk a bit on forward guidance. 

Considering her past behavior as a strong Dove her Dovish sentences could push US Dollar down and gold up, but after becoming the FED Chairwoman there is surely change in her stance and therefore, I will not surprised if she maintains a balance approach. 

Meanwhile, pipe piper Mario Draghi has done it once again by taking a u-turn with his less Dovish comments that helped in shifting market sentiment. Only recently he was showing his concern about weak economic condition in Europe and now he thinks that there is no threat of deflation. He has to be cautious, as such policy statement does not work every time and if he continues with same the approach every time his credibility will be questioned if European economy is unable to pick up. 

Europe has along way to go, minor improvement in manufacturing and service sector does not mean European economy will enjoy same trend, which is on the border line. Europe is still suffering with 12 pct unemployment rate, it has higher youth unemployment rate. European economy is still dependent on Central Bank liquidity injection, spending and deficit still needs to be controlled. Whereas, Germany has shown good growth trend due to strong domestic demand, but export needs to pick up further and lot will depend on global growth that still faces huge risk of slowdown.          

GOLD @ $ 1266 = Non-farm Payroll has become less effective data for gold after FED deciding to continue with its stimulus reduction plan, fall in unemployment was another factor that hindered gold to make big gains. However, tone of FED Chairwoman on Tuesday during her testimony could be key to golds next move. 

Gold may initially hold around $ 1248-55 levels for a test of of $ 1275-80 zones, break risk for a move towards $ 1295-98, but should exhaust or else if surrenders, gold could test $ 1325-30 zones. However, on the downside break $ 245 will encourage for a test $ 1225-30 zones. 

EURO @ 1.3633 = Question raised by the German court's constitutional ruling about the legality of OMT program basically should help Euro, which does not favor QE or in other words makes liquidity injection difficult that would lead to more demand for European currency. Euro move will also depend on Yellen's statement. 

Euro's up move will depend on break of 1.3720-50 zones, a push above could see push extending towards 1.3850, but fall below 1.3550 will encourage for a move towards 1.3470-80 zones.

GBP @ 1.6408 = Though Pound Sterling lost its upside momentum recently, but BOE's inflation this week would give more clarity. Any move beyond 1.6490-95 would give lift to Pound Sterling that should help Pound to move towards 1.6590. However, downside break of 1.6310 will challenge test of 1.6220-50 zones.  

JPY @ 102.30 = JPY needs to break 102.90 for 103.50, but failure to move beyond 103.50-80 zones risks for 101.40, break would see further gains for Japanese Yen for test of 100.50-80.

AUD @ 0.8957 = Aussie needs to push beyond 0.9025 zones for a test of 0.9080-90 levels. Drop below 0.8870 would see a move towards 0.8750.  

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.