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FED May Adopt Cautious To Mildly Dovish Stance – May 01

May 1, 2013

The day has started with big Chinese event with its manufacturing sector (PMI) showing weaker growth. This does not bode well for the global economy, as European economic data continues to show signs of weakness,  jobs condition is alarming, domestic sector is struggling and exports are suffering and this why inflation is low that provides space to ECB for a rate cut. 
More importantly today’s FED decision on its interest rate policy is the biggest event of the day. As I said in my weekly post that nothing much should be expected, as FED may prefer to continue with its current ongoing stimulus policy due to recent poor show by US economy and may buy some more time until the cloud gets clear. If this happens to be true then this should be considered mildly Dovish approach and hence, US Dollar may loose some of its sheen and gold could make some more gains before falling.
Meanwhile, Japanese economy has shown signs of mild recovery,  as its manufacturing, housing and jobs sector has responded to the measures taken by BOJ that was well supported by the new government, though at an early stage as weaker Yen may have helped the cause, but Yen correction needs to be checked or else all the hard work will go down the drain. Yen move will also depend on US 10-year bond yield that has gained substantially, so keep an eye on US 10-year bond yield, a move below 1.60 pct may see some more Yen gains, but I am expecting reversal soon, as stronger US data will see US treasury loosing some of its gloss that will not help the Japanese currency to continue ts joy ride.

GMT 2:55 – EURO @ 1.3165 = Signs are encouraging for Euro and may hold 1.3120, but needs to break 1.3210 for 1.3250. However, on the downside break of 1.3070 will open gates for for losses. 
GMT 3:03 – GBP @ 1.5531 = Cable has very resistance around 1.5470-80 zones and break of this level may encourage for a test of 1.5605-10 levels. However, fall below support 1.5470 could see a test of 1.5420.
GMT 3:12 – JPY 97.35 = Japanese currency has strong resistance around 96.80-85 levels and only break risk for 96.25. However, break of 97.80 is required to challenge 98.30-50 zones, which is crucial to halt Yen’s current rise.
GMT 3:16 – AUD @ 1.0367 = Strong barrier is around 1.0390-95 levels and break would encourage for a test of 1.0410. However, protection around 1.0325-30 should not surrender or else 1.0288.
GMT 3:31 – GOLD @ $ 1474 = Mildly upside bias until data that may give initial hint about the coming trend, but FED announcement would be the key. Initially I am expecting $ 1465-67 to hold for test of $ 1480-85 zones. Break of $ 1505 would push gold towards $ 1520-25 zones. However, a fall below $ 1457 will open gates for test of $ 1435-40 zones.

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