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Fx & Gold – Monday May 13-17

May 13, 2013

In the absence of any major economic data, markets remind worried about weak European economy, as minor improvement in German industrial production was not enough to change the mood. Neither China’s surging trade surplus helped the cause.
While, US economic indicators have once again started showing signs of recovery by entering the positive territory giving hopes that US economy would pick up from where it left about a month ago and the slowdown was temporary. 
For the last few years banking reforms is high on agenda and during the weekend G-7 finance ministers (FM) met in Aylesbury-UK to discuss more possibility about Bank Capital injection. This is pain in the neck, as funding for banks is not a monetary policy decision it involves tax payer’s money and therefore, it requires administrative order at government level that could only be possibly though legislative changes.
Interestingly, this time in their discussion/agenda, G-7 FM showed concern about tax evasion agreeing to apprehend the tax evaders. I have frequently argued in my various posts that the world leaders and the financial managers often talk to stern austerity measure, but they needs to concentrate on increase their revenue. By increasing economic activity and by increasing tax rate on higher earnings is couple of options that would benefit a country laden with debt or else deficit financing would continue to pile up without firm action.
Meanwhile market would focus on the release of global economic data’s. ON Monday activity should begin in the early hours, as market will try to get clues from European FM weekend gathering in UK. There are some important economic indicators that will be released in Europe. But focus will remain on release of US economic numbers such as Retail Sales, PPI, CPI, Initial Jobless Claims and University of Michigan Consumer Confidence.

EURO @ 1.2986 = Last week I did warn that EURO’s strength is not very convincing as Europe still looks brittle, the other factor that that I pointed out was interest rate differential that makes EURO less attractive. The supporting factor that was holding Euro firm was European bond yields that gained strength due to 50 bp rate by ECB, which moved in line with the yield curve.Clearly market will focus on initial release of European and German economic numbers and poor data may not help EURO to recover, as ECB officials have already hinted of more easing if the economy does not recover.Whereas, if US economy continues to show strength, then FED’s job will become easier to reconsider its asset purchase policy will become easier and this should help US Dollar.However, despite weak economic condition in Europe, investors are in no mood to succumb to pressure and hence, EURO could bounce back after small dip if it fails to fall below 1.2910 that would encourage for test of 1.2840-50 zones. On the up it needs to surpass 1.3080 to test 1.3150 levels. Range for the week 1.2820 – 1.3160.
GOLD @ $ 1447.50 = Last week, I warned that we could see small up move, but I do not favor move beyond $ 1480 levels, as I sensed a fall due to strong US payroll number. Favorable initial jobless claims number gave more confidence to the bears. They could become more courageous if US economy shows healthier growth this week. Strong US data will give confidence to FED to reduce or halt its asset purchase program that has been big supporting factor for gold.Gold is not expected to surpass beyond $ 1465-70 levels or else $ 1475-80. Favors break of $ 1435 for $ 1415 and a fall below $ 1397 will open doors for $ 1372.
GBP @ 1.5352 = Initially after dropping, firmer tone of GBP is expected as it could recover on the news of positive data. If 1.5290 breaks, GBP should not surrender 1.5220, as a move above 1.5410 is required to challenge 1.5495. Range for the week 1.5210- 1.5520.
JPY @ 101.58 = The weakness of Japanese currency was a bit unexpected. However, strong US initial jobless claims numbers and surging 10-year US bond yield helped weakening of Yen. Next move will largely depend on US economic figures, as see risk for some more losses before Yen making correction. As long as Yen holds 100.20-40 levels, see risk is for a test a test of 102.50-80. Break will see more losses, but needs to surpass 103.50 for more Yen losses. Range for the week 100.20 – 103.80.
AUD @ 1.0019 = The fall was larger than expectation. However, I do not see deteriorating economic condition in Australia, whereas Aussie still has interest rate differential advantage, which is key supportive factor from investor’s perspective. I will not be surprised to see buying interest on dips. Apart from threat of further rate cut one more factors that goes that goes against the AUD is that it’s a commodity currency.I see very strong support around 0.9920-40 zones and would buy for medium term with STOPS if 0.9840 surrenders. As see move back to 1.0220-80 range. Range for the week 0.9920 – 1.0280.

Catch me on Twitter……………… @asadcmka
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