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Jackson Hole Speakers fear Chaos and Volatility around the Globe – Aug 26-30

August 25, 2013
It is now becoming obvious that FED certainly has a tapering plan, but since there is lot of talking going on by both the voting and the non-voting members, it remains to be seen that when FED acts. What I can make out from Fed’s last Wednesdays minutes is that economic performance will surely matter and will help in determining the tapering timing. August US unemployment rate could be the deciding factor.
Let’s get to the point straight away and try to evaluate the Jackson Hole get together, though Bernanke opted to stay away from the gathering that broke 25 year old tradition as FED Chairman did not addressed the Jackson Hole Policy Symposium, which is said to be because of “personal scheduling conflict”.
But most of the speakers seem to be extremely worried about Fed’s exit strategy, fearing ciaos and volatility around the globe. Economist representing global financial bodies too have joined the bandwagon and voiced concerned about Feds exit plan, demanding great caution as reversal can severely impact the markets. It seems that consensus has developed at the Jackson Hole annual gathering that FED looks determine to start its act by September.
There is lot of talk about market having priced in FED tapering. I think this is probably last effort by the borrowers getting easy money to clam market sentiment in a hope that delay would give them another opportunity to make profit with comfort, which is only possible if FED delays.
If we look at the cracks appearing in the emerging markets (Brazil, South Africa, Indonesia and India), the math’s is not so simple. There is a grave concern of unrest and market getting exposed if FED decides to withdraw. Continuation of soft interest rate strategy and expansionary policy to stimulate growth may not be feasible after tapering because the balance sheet and external balance position has/will be wakened. Hence, exit from quantitative easing does not support expansionary policy due to mopping of liquidity, neither it will support asset price, which means sizable tapering will have larger impact on the borrowing economics unless done at a measured pace.
Meanwhile, speeches from FED officials will keep market on its toes, market will once again start concentrating on the release of economic data and tapering talk will gradually gather momentum, as we get close to Fed’s policy decision date, which is due next month.
The up-trend favoring is US Dollar is obvious due to better growth condition and improved job market in USA, which is likely to push inflation higher in coming months. The Q2 GDP growth data could see a modest upward revision, but consumer confidence could dip because of higher price impact. This is likely to cause volatility in currencies, commodities, equity and bond market.
GOLD @ $ 1397.10 = It is another perfect call, as we saw gold hitting my target $ 1400. On Monday I am expecting breach of $ 1400 levels and break of $ 1406 will encourage for a test $ 1415-20. Beyond those levels I would like to remain cautious as gold could fall from $ 1420-30 levels. On the downside break of $ 1380-85 zones will encourage for test of crucial $ 1375-80 levels, break here confirms bigger losses targeting $ 1350-55 zones.
EURO @ 1.3376 = The move was quite in line of my projection hitting topside of 1.3440 before easing. The trend is likely to continue, as Euro seems to be stuck in a range. We could see a move towards 1.3410-30 zones, but unless makes a clear break of 1.3490-00 levels, the downside pressure would continue. Break of 1.3305 will encourage for a test of 1.3240-50 zones where European currency will provide stiff resistance and only break here should encourage for test of lows of 1.3150. Range for the week 1.3150 – 1.3520.
GBP @ 1.5564 = The move that we saw in Pound Sterling was in line of my forecast, perfectly hitting the target 1.5716 before dipping. We may have possibly seen the top, as this week GBP could struggle to make gains due to lack of support.
Cable clearly has strong resistance at 1.5598 and only break would encourage for a minor up-move, but should not surpass 1.5650 levels. Prefer selling as, as break of 1.5480 will encourage for more losses towards 1.5450.  Range for week 1.5390-1.5680.
JPY @ 98.67 = Traded well within the expected range. Bias this week should be for weaker Yen. Weak Japanese stock market helps JPY to recover, as selling of stocks creates demand for the Japanese currency and therefore any such move should be used as opportunity to sell JPY.  Any gains should hold around 97.05, which will only be possible on break of 97.40. A move beyond 98.30 is required to test 99.90-95 zones and once support levels breaks, Yen should sharply move towards 100.60-80 zones. Range for the week 97.05 – 100.80.
AUD @ 0.9020 = Aussie moved in line of my call, but failed to surpass 0.9250, encouraging sellers to take position. This week view on Australian Dollar is neutral. The levels to watch are 0.8950-80, should hold for a move and break of 0.9095 that will encourage for a test of 0.9155 or else 0.8920. Range for the week 0.8920 – 0.9250.
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