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Strength of US Economy is Intact – Europe is still Brittle – May 31

May 31, 2013

Market has been choppy, somewhat uncertain, but nothing has been extraordinary. Its the Japanese stock market that baffles the market with uncertain moves and leaves rest for Europe and USA to guess about the next move. In real sense nothing has changed, technically we can call it correction.

Market should remain choppy due to book squaring, as today is the last day of the month and economic indicators in plenty though no major announcement should keep traders active. I did not find US economic data very alarming nor I have noted any major recovery in Europe. I think overall talking by European and FED official had more say in the market move rather than release of economic numbers, which was almost close to market expectation.

Couple of ECB official showed resistance over the idea of negative deposit rate, which could be good news for the European currency, but economic picture in the Euro-zone region remains bleak, as there are no signs of recovery this year, which is officially announced and accepted by ECB and OECD. ECB Hawks cannot continue to blow the trumpet if economy continues to deteriorate. I think such statements becomes necessary to discourage one-sided moves and to maintain a balance. The real driving force behind all major decisions will be the economic performance.

But US economic performance is far better and is in positive territory. So far the barrow meter to determine growth is employment, housing and spending. All are showing signs of improvement and with current growth pace FED may not hesitate to reduce its asset purchase in next 3 to 6 months time. Do not ignore US bond market for clues, 10-year US Treasury yields is comfortably above 2 pct and unless it falls below, US Dollar is attractive. Meanwhile, today’s release of inflation data from Europe will be watched with interest, as it is expected to surge after rise in German and Spanish inflation numbers.

Stronger inflation data negates the idea of easing, but higher unemployment rate in Europe is a matter of grave concern for the policy makers. The problem is that economic activity in the Euro-zone will not be revived unless seriously addressed, which means more easing. ECB will be meeting next week to decide its interest rate policy and banks in Europe is said to be prepared for negative deposit rate.

While in US session, release of Personal Income & Spending, Chicago PMI and Michigan Consumer Sentiment Index will give more clues about the the US economy.

GMT 2:59 – EURO @ 1.3033 = Euro has support around 1.3005 and only break would encourage for a test of 1.2970. See risk for a move towards 1.3085-95 zones where this rally should exhaust or else test of 1.3135-40 levels.However, a fall below 1.2940-50 zones see resumption of down move.
GMT 3:07 – GBP @ 1.5225 = Cable needs to break 1.5260-70 levels for 1.5310. On the downside strong support is at 1.5170. Break risk for 1.5115.
GMT 3:14 – JPY @ 101.05 = As long as 100.40-50 holds could test 101.80-90, but see risk for more JPY gains, as possibility of test of 100.20-25 cannot be overruled.
GMT 3:18 – AUD @ 0.9631 = Aussie has support around 0.9570-80, only break risk for 0.9540. A beyond 0.9680 could challenge 0.9720.
GMT 3:28 – GOLD @ $ 1418 = Buying on dips is preferred, as gold should hold above $ 1407 before new York opens and is likely to test $ 1425-28 zones. However, I am expecting this rally to be the final up move, as downside break of $ 1403 will speed up the fall and break of $ 1390 will confirm that the top has been seen. Only push beyond $ 1440 will be threatening

Twitter me on        @asadcmka         for Currency & Gold      Updates

 

 

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