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Worst is Over for US Economy – June 10-14

June 9, 2013

Last week, there was lot of excitement amongst investors due to monetary policy announcement by Australian (RBA), European (ECB) and Britain’s Central Bank (BoE). Nothing very extraordinary happened, as all three Central Banks showed their concern about economic recovery, but all opted for hold.
ECB President Mario Draghi, as always tried to give sweetener is his talk to the press about recent improving economic conditions in the Euro-zones, though he said recovery will be difficult this year fearing contraction, but was confident of next year’s recovery. Due to present economic difficulties he talked of both the possibilities, further easing and implementing of negative rate on deposit.  This is by no means an encouraging sign. Surprisingly market took his note positively, which is not in line with fundamentals.
During the weekend, Bundesbank (BUBA) announced that it is slashing its GDP growth outlook for 2013 and 2014 to 0.3 pct and 1.5 pct from earlier estimate of 0.4 pct and 1.9 pct respectively. It is another big blow and a setback for ECB, as Germany is one of its major economic contributor. Though there is some optimism and many firmly believe that stability is back in Europe, but BUBA’s report is not good news for region’s economy, as downward revision could cause damage to growth/recovery prospects.
In the North America, Friday’s better than expected US jobs data was another major event of the week. It is expected that in next 10-days days it will provide lead to the market, since many are/were hoping delay in FED tapering due to recent mixed batch of US economic data’s and were expecting disappointing payroll numbers. 175 K is not a weak numbers by any means as market should realize that soft payroll number id caused due the impact of sequester and tax issues that was expected in 2nd quarter. Earlier, FED’s Beige Book economic report had already confirmed modest growth in 11 out of 12 districts, which confirms satisfactory economy performance. So talking of weak economic performance is baseless.
US economic performance was notch better in the 2nd quarter against expectation and in coming days and months economy should gradually get better. There is optimism that in summer period business condition will improve based on rising stock market and surging home prices, though tax benefits have shrunk and rentals have gone high. I have no reason to fear about worsening economic condition in next quarter. In fact I am expecting recover in manufacturing sector that should give boost to the economy.
With recent development during last couple of weeks that clearly indicates that the tilt is surely towards FED considering reduction of its asset purchase program, it’s the question of timing that matters most. Better economic numbers will help FED to begin its unwinding program. Quite a few FED voting members have joined the bandwagon and I still believe that non-voting do have a role to play, which is one reason for them to join the Hawks.   

GOLD $ 1384.10 = Last week I was a bit shaky to recommend selling gold, as there was threat of more US economic sufferings. Today, we are faced with different economic scenario. Euro is up because investors see stability in the Euro region without fearing the fundamentals. Indian Rupee in on constant decline, which makes buying more expensive for the Indians, world’s second largest gold buyer. China too is struggling to attain high growth levels. FED’s intention on its asset purchase policy is still unknown, but we all know tapering is matter of time. All odds are certainly against gold. It’s investor’s desperation/wish that has purchased gold at higher prices to keep gold prices higher so that they can offload their expensive holdings. In my view, buying dead metal that offers no return is a risky proposition and a bad bet to hold gold for longer duration that may end up at a loss. Though buying could beneficial for short-term trading purpose.
This week too gold would be a good sell around or above $ 1400. Technically, I will give some space for test of $ 1406-10 zones, which should be the top. Only break would risk for another upside test of $ 1425. However, break $ 1370-75 levels will encourage for $ 1350-55, as fall could extend towards $ 1320-30 zones.
EURO @ 1.3214 = We have witnessed one attempt towards 1.33, which was briefly tested. Now if 1.3120 holds we could another up move, but needs to push beyond 1.3280 for a test of 1.3320-40 zones before dropping. A fall below 1.3050 will negate further up move. Range for the week 1.3010 – 1.3390.
GBP @ 1.5554 = Bias could be mildly on the upside as long as Cable stays above 1.5420. On the upside break of 1.5680 is required for a test of 1.5720-40. If seen cable will be top heavy for another fall, or else on the down side 1.5350. Range for the week 1.5350- 1.5750.
JPY @ 97.53 = We could continue to witness choppy trading, as excessive moves is still a possibility. Japanese stock market and US bond could be the driving factor. Strength of US economy could further dent JPY. However, unless Japanese currency weakens beyond 98.50-80 zones further Yen gains is a possibility? Break of 96.40 will see a test of 95.70. If surrenders then test of 94.50-80 is unavoidable. Range for the week 94.50 – 99.20
AUD @ 0.9492 = Aussie still has downside risk. Break of 0.9370 could accelerate a move towards 0.9250. However, a move beyond 0.9570-80 levels will encourage foe test of 0.9650, which cannot be ruled out. Range for the week 0.9250 – 0.9650

 DISCLAMER: The commentary/information presented is not intended for trading purpose. The idea is to exchange views with the members/readers. Therefore, I accept no responsibility or liability for any losses incurred due to position taking.

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