Prospects for GOLD & CURRENCIES (Feb 2-6)

@asadcmka

Last week FED's stance on economy remain unchanged with some hint of earlier rate cut. Though in my view this may not happen too soon, but growth prospect for the time being is expected to be encouraging that should provide momentum to the US currency.

This week, market will obviously focus on US inflation data for future interest rate guidance, but major concentration by the weekend will shift towards Non-Farm Payroll data, which could be the main driver of foreign exchange market.  

EURO @ 1.1285 = On the European front, Greece uncertainty would continue to haunt the market. Any bad news from Europe would add pressure on the European currency. 

Meanwhile, last week we saw occurrence of some corrective moves in Euro. Further quietness in Euro-zone region will see some more consolidation and stable Euro. After the recent release of batch of neutral to positive Euro-zone data, market may not show aggression unless Greece's newly elected government shows hostility towards European policy makers. 

However, any EURO strength/gains should be short lived, as currency will find more sellers than buyers due shift in European asset portfolio.

EURO needs to fall below 1.1120-40 zones for a move towards 1.0920-50 zones. However, failure to move below support levels risks for another upside test. 1st Barrier is @ 1.1350-80, with Major Protection @ 1.1480, if surrenders 1.1620 will be the next level to watch.

GBP @ 1.5069 = Meanwhile, Pound Sterling is another currency that could struggle on back of weak economic condition at home due to deflationary pressure. The change in stance of 2-BoE voting members that were earlier demanding rate hike, now prefers to stay on hold and watch pace of economic move should add pressure on GBP. 

Further, growing political uneasiness due to coming May-2015 elections and BoE's somewhat Dovish approach should hinder foreign investors, which is again bad for Pound.

As long as 1.5280-00 holds Pound Sterling is likely to remain under selling pressure. Needs to push below 1.4940 for deeper fall to test 1.4820. Break here is requited for 1.4650

JPY @ 117.47 = JPY needs to penetrate 116.80-00 levels for possible test of 115-80-00 zones. However, see risk for a move towards 118.40-60 for 119.20  

Gold @ 1283.50 = Lost its luster, as it no more enjoys a safe haven status. We may have seen end of aggressive purchase of gold in India, as the gap seems to have filled. For last couple of years, physical gold buying in India thinned down after the introduction of duty and rebate by the previous regime. Good demand for gold was witnessed after the newly elected government lifted taxes.    

Presently, there is no major Geo political tension. US is done with its ultra loose monetary policy and quantitative easing (QE) strategy that saw good part of money flowing towards gold portfolio. This may not be the case with European QE money, as ECB strategy will surely differ. 

Slowdown in China is also not supportive for gold, as evidence clearly suggest reduction in physical demand. Institutional demand for gold will also remain soft. Overall, desire for gold buying has significantly reduced, as equity and other asset class are surly on top of investors list.  

Strong US Dollar and liquidity squeeze caused by falling global oil prices is another reality that does not bode well for the Yellow metal.

Therefore, in present times Greece worry could only be the supportive factor that may give some life to gold, but its an opportunity for investors and speculators holding gold to take price advantage and reduce holding, as gold Bears have very few reason to celebrate.

WEEKLY VIEW  = Initially gold will rise in early trading, but during the week gold still needs to clear $ 1305-10 levels, which looks tough to enter new territory of $ 1325-40 zones. Therefore, preferred strategy would be to pick upside to sell, as break of $ 1265-70 is required for a fall towards $ 1250-55 zones.

MEDIUM TERM VIEW = Gold is still is a Bearish mode and should find sellers on the rise. For bigger gains gold needs to penetrate beyond $ 1340 to teat $ 1380-00 zones. However, once $ 1240 surrenders attaining $ 1170-75 levels would be easier for $ 1120.