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Despite Positive Economic Data, Risk Still Looms over Europe – July 26

July 26, 2013

Once again the signals on economy is positive from Europe and USA, as both the regions are indicating steady growth. Though outlook on economy in Europe has been improving, but it is faced with a bigger challenges. Since Euro zone region is vastly spread out it is still faced with high unemployment rate, deficit is not manageable as yet. Germany’s banking system could be in better shape, but regions banking system is still faced with liquidity shortage and capitalization issue that is haunting them, which means economic distortion/imbalance in one country can overall cause sever damage as it have spill over effect. IMF is already demanding from ECB to slash its policy rates and to take measures to revive bank lending to spur growth so that job condition improves, which is the real truth.
USA is faced with different situation and for years growth and employment is its priority. US GDP may disappoint in this quarter, as its economy may contract in 2nd quarter to or below 1 pct, but its unemployment from nearly double digit is down to 7.6 pct in a span of 4-5 years, which is substantial recovery in economic terms, whereas unemployment rate in Europe is at alarmingly high level of 12.2 pct. However, this not mean party time for USA, as both the region is faced with sever challenges. The US economic recovery could be due to earlier measure taken by FED, Europe is considering to pick clues from FED, while new Japanese government came from behind to act quickly. This does not guarantee global recovery, as cracks have started to appear in so called BRICS countries, but China’s slowdown could be more damaging that could lead to another collapse. The world will be faced with real challenge when FED announces its scaling down plan.
Meanwhile, in the absence any major data release, range bound trading is expected. US Dollar took some pounding one of the WSJ Fed watcher’s comment that he does not see change in FED’s asset purchase program in it next weeks policy meeting. Well this could good opportunity to catch the top. It may also help gold to hit new highs  in New York before falling next week.

 

Fx & Currency Update Later……….

 

GMT 1.40 – EURO @ 1.3275 = I consider this move as good opportunity to buy Euro around 1.3290-00, only break could see some violation extending top towards 1.3325 for dip to test 1.3240-50 zones, break could see fall extending towards 1.3220-25. However, 1.3350 should hold.
GMT 1:50 – GBP @ 1.5385 = May hold around 1.5340-50 for test and break of 1.5398 for 1.5425-30 before exhausting, or else 1.5310.
GMT 1:54 – JPY @ 99.24 = Failure to move beyond 99.65-70 risk for some more Yen strength that  could see a test of 98.80-90 zones.
GMT 2:00 – AUD 0.9261 = Aussie gained against expectation but, I would like to remain cautious around 0.9280-90 levels, as any move beyond should be good opportunity to Sell with Stops 0.9360 for 0.9225 or 0.9190.
GMT 2:13 – GOLD @ $ 1335.80 = Gold may hold around $ 1328-30 and only break risk for drop to around $ 1320-25 levels in Asia or early Europe. However, today I see upside risk and possible test and break of $ 1345 and this rally could stretch up to $ 1354.

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