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EURO & GBP to Recover, Gold to Suffer – May 20-24

May 19, 2013

The confidence in US economic recovery is gathering momentum and report last week by WSJ about FED mapping up a strategy for unwinding QE has substance, as FED Doves are joining the Hawks bandwagon in a hope that chances of unwinding of FED’s asset purchase program is increasing, since US economy looks in a better shape.
On an average, consistent growth this year is visible in manufacturing and housing sector. In last six-months over 1.2 million jobs were created. US Consumer is showing their confidence in economy. Continuing trend will certainly give boost to the Hawkish sentiment, but any slowdown could cause delay.
While, Europe continues to disappoint as threat of negative deposit rate is looming, which is getting endorsement from ECB official, low inflation strengthens the argument as it provides space to squeeze further. Evidence suggest Germany’s growth pace is slow, as it did not expand as per expectation, France is in recession, there is prolong recession in Italy, as its economy is unable to fight the odds.
This week focus will remain on the release of global economic data. Initially, we may witness slow start to the week in the absence of any major data, but keep a close watch on the release of language from EU summit. But there are important economic data announcement from UK, on Tuesday CPI & PPI will give further evidence of inflation and purchasing trends. Release of Euro-zone and German PMI could add some spice, which could be better than previous numbers, which will be followed by German GDP and IFO data to be released on Friday that could spark rally.
Meanwhile, market will be more focused on Wednesday’s US existing home sales data that is expected to edge up, housing market is one big confidence boosting factor. But more importantly release of FED’s FOMC minutes later in day may have a bigger say, as there is lot of talk of unwinding of Fed’s asset purchase program. Thursday and Friday will be a busy day as barrage of data will be released from China, Europe and USA.  

GOLD $ 1359.22 = Last week I predicted correctly that gold decline will continue and I see no reason for its recovery this week unless FED’s FOMC minutes call for extending the QE period, which means initially gold will suffer more losses before taking a breather.
There was lot of talk of gold buying from India and China after the sliding to around $ 1300 and we saw some recovery, which was helped by physical buying. Overall, there could be some coin or gold bar buying interest but, I do not expect investors to jump at time when reports are suggesting that demand from China fell. The trend is clear, unwinding mood is putting pressure on gold and any hint from FED to act quickly could bring more misery for the yellow metal.
Gold should find resistance around $ 1375-80 zones and only break would encourage for $ 1395. However, I am not expecting this move to happen as, it is likely to fall. Break of $ 1335-40 will exert pressure on gold to test $ 1320-25. My next target is $ 1275.   
EURO @ 1.2836 = Euro has good support around 1.2750 and is likely to hold for slight up move. Break of 1.2880 will pave way for a move towards 1.2940-50 zones before down again. Range for the week 1.2650 – 1.3040
GBP @ 1.5165 = Mervin King in his last speech showed some optimism about UK economy’s recovery prospects rising growth outlook. BOE’s minutes will provide more clues about the chances of QE injection, but Tuesday’s inflation data will be taken more seriously.
The key is test and break of 1.5020-50 zones, which I am expecting to survive. It needs to move beyond 1.5250 for a test of 1.5340. Break would encourage foe 1.5420, or else 1.4970. Range for the week 1.4950- 1.5420
JPY @ 103.18 = Japanese currency could not defend 103 levels, but needs to move beyond 103.80 for test of 104.30-50 zones. However, break of 102.40 will risk for 101.80. Range for the week 101.50 – 104.50
AUD @ 0.9723 = The pressure on Aussie is likely to ease after some more dip, as support 0.9650 is likely to hold. Only break risk for 0.9570. However, on the upside strong resistance will be met around 9.9825-50 zones. Range for the week 0.9550 – 0.9880.

Join me on Twitter for New Updates                   @asadcmka………….

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