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Euro & GBP to make gains – Feb 11-15

February 10, 2013

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China’s trade data for January reported monthly exports surging by 25 pct and import up by 28.8 pct from year ago, helped trade surplus to rise by USD 29.2  billion that was far better than expectation. While US trade data shrank to USD 38.5 billion in December, smallest since January 2010 could mean that 4th quarter GDP will make an upward revision instead of contracting by 0.1 pct, as previously announced. It also suggests that growth prospect for 2013 may shape up well.In another major development European leaders agreed to the proposed 7-year budget plan. But there are surely many hindering factors in Europe that still needs to be resolved.More importantly there is lot of talk and fear about currency war that is creating uncertainty and imbalance in global economies. This is a vast subject, which is Central Bank’s responsibility, but it is worth noting that governments of developed countries are directly intervening/involved in an effort to weaken their currencies. For years China has been blamed for artificially keeping its currency weak. About a year ago Switzerland announced floor at 1.20 levels against Euro to discourage strong Swiss franc and to support its export. SNB is often seen in the market offloading Swiss Franc. Few months ago Japan’s government opted for a similar policy to keep its currency weak to create demand for Japanese product and most recently French President Hollande has showed his concern by demanding for stable European currency.The pressure has been mounting and keeping in view the global developments, last week Mario Draghi in his follow-up press appearance after the release of Euro region’s monetary policy announcement gave ECB perspective on many issues.  Draghi has once again played the role of a matured Central Banker with his balanced comments that helped in halting Euros rise. If you read the lines, Draghi was smart enough clearly hinting that if currency continue to rise policy makers will have to measure its inflationary impact and he went on to keep market on toes by saying that he is anticipating at least another interest rate cut within 1st half of 2013. He started his press conference by hinting that he would continue with his accommodative stance. The message was enough for Euro Bulls to offload their holdings. He did say that Euro appreciation was sign of return of confidence and LTRO repayments is a sign of improved sentiments. He cautioned the market by hinting that inflation is still high and it may take few months to fall below 2 pct, he added that growth will be largely based on reforms probably linking combination of austerity package that includes spending cuts with better tax reforms to reduce deficit that will certainly delay recovery as he said “Euro weakness to prevail on early 2013″  He certainly did make verbal intervention, as he must be quite aware of the business cost and the consequences of excessively high exchange rate. Europe is still in a recovery path, minus Germany rest of the region is yet to make strides and this is just the beginning of German growth recovery, which is at an initial stage that will largely depend on global demand and Geo-political factors.I have one more important observation about his response to a query on Japan’s stance about weak Yen policy, he was probably indirectly countering to Japanese Government’s policy shift in support of weak Yen. He said that one of the European officials showing his concern about Central Bank independence is genuine and he strong support this view. It all points to finely balanced approach adopted by ECB President, which in my view in commendable and in present scenario Euro band of 1.30-1.40 should be the acceptable level to ECB.This week European economic data, as always will be keenly watched. Minus Germany rest of the region is contracting and is yet to make a comeback. If German economy slows down, this could be bad news for Euro-zones economy. More importantly trouble in Spain caused by allegation of corruption charges involving its government could provide further dent unless Spanish PM Rajoy fulfill his promise to disclose his tax return and financial assets as quickly as possible. News of former Italian PM Silvio Berlusconi’s narrowing of gap for coming elections due in two-week time is further upsetting the market because his policies is in negation of current European policy maker’s demand. Meanwhile, in USA market will be focusing on economic data’s such as retail sales, export price, business inventories, initial jobless claims, industrial production, capacity utilization and Michigan sentiment that will provide more clue about economic recovery.     
GOLD @ $ 1667.80 = Gold has once again survived a drop due to political developments in Spain and Italy. Chinese New Year buying is over and US economy is maintaining its growth pace, so in all probability gold may not find enough legs. I would continue to pick the top to sell yellow metal as it has two resistance levels $ 1678-80 and $ 1690. Break of $ 1655 will encourage for a fall towards $ 1625-35 zones.
EURO @ 1.3366 = Euro’s next move could depend on political developments in Euro-zone rather than economic data. 10-year Spanish bond yield and stock marker behavior could be the trend indicator. If 1.3310 breaks we may see a slide towards 1.3240 zones  or 1.3180. However break 1.3450 will encourage for a test of 1.3550-80 zones. Range for the week 1.3150-1.3580.
GBP @ 1.5795 = Bias is on the upside, 1.5650-70 is the strong support levels, which could tested on break of 1.5710. A push beyond 1.5880 will encourage for a test of 1.5950. Range for the week 1.5640- 1.5980.
JPY @  92.60 = Break of 93.10 will encourage for a test of 93.60. See risk that if 91.80 surrenders the move could extend towards 90.50. Range for the week 90.20 – 93.80.
AUD @ 1.315 – 1.0313 = Aussie has strong support around 1.0220 and only break of this support level will see a push towards 1.0170. However, AUD has the ability to bounce back from lows a break of 1.0380-90 will encourage for 1.0440. Range for the week 1.0170-1.0450
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