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Dovish Tone is Good for Gold & Bad for US Dollar – May 22

May 22, 2013

Today market will wait for FED FOMC minutes and its Chairman for guidance, but last night comments from 2-voting FED members does not show too much optimism as James Bullard is upset with slow pace of inflation and William Dudley does not look too happy with the US economic outlook. Analyzing recent comments from FED official (Voting and Non-Voting members) the language is mildly Dovish, which could mean something like FED may need more time to decide its next line of action or in other words some more QE is required to reach a comfortable level.
I think in his testimony, Bernanke will still be choosy and cautious with his words, unless he has some other ideas. More importantly market will try pick his words from Q & A session from lawmakers, which may carry more substance. I am still not sure that if FED can do unwinding or has a exit strategy plan, though FED may reduce or halt QE.
Any clue about reduction in QE size or optimism about US economy will see US Dollar roaring and gold weeping. But minor concern or hint of delay will depress US Dollar Bulls and gold will skyrocket.
Prior to FOMC minutes and Ben’s testimony, bias for USD will be on the downside and gold on the up.

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GMT 3:01 – GOLD @ $ 1378.30 = Prior to FED minutes buying interest will be seen around $ 1370-75, as $ 1364 should hold. Break of $ 1388 could see rally extending towards $ 1392-95 zones.
POST FOMC Scenario: The key level to watch would be break of $ 1325 on the downside and $ 1405-10 on the up for next big move.
GMT 3:05 – GBP 1.5157 = Cable needs to push beyond 1.5190 for 1.5240 or 1.5280, which does not look a possibility. See risk for bigger fall if 1.5070 surrenders.
GMT 3:10 – JPY @ 102.45 = As long as 102.90 is protected see risk for a move below 101.40, break could encourage for 100.90. However, a move beyond 103.25 would see a rush towards 103.90.
GMT 3:15 – AUD @ 0.9793 = Aussie has protection around 0.9750 for test  0.9880-90 on break of 0.9850. Only break of support level risk for test of 0.9720 levels.
GMT 2:50 – EURO @ 1.2922 =I am expecting Euro to hold above 1.2870-80 levels, buy dips is preferred strategy for test 1.2960-80. Levels to watch after FED FOMC minutes is 1.2830 and 1.3040

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