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G-20 Policy Shift is to Deceive the Market & Nothing Else – Sept 9-13

September 8, 2013

Last week, the biggest economic event  was the  release of US jobs data that showed  minor drop against expectation of 173.000 job gains, which fell by 4.000 and the unemployment rate falling to 7.3 pct caused by low  participation, which is lowest  since 1978. The bigger  cause of damage to the positive US growth sentiment was downward revision of June and July jobs by 74.000. This also means the economic erformance in 3rd quarter was a bit disappointing despite improvement in jobs data.
If we look at the monthly average jobs data for 2013, it is still hovering around 180.000, which is not a bad number. I think drop in jobs numbers could be blessing in disguise for Fed, as it gets closer to its initial target of 7 pct US unemployment rate. At a time when the Syrian uncertainty is looming over the head, softer jobs data provides space to start tapering with smaller number, say around $ 10-20 billion, though bigger number could be shocker.
In another important development during world leaders G-20 nation meeting at St. Petersburg in Russia, they felt the urgency to tackle global economic problems putting growth and job creation on top of their priority list with special focus on developing nations.
This is a clear shift of change in language/strategy to deceive and nothing else, as pervious theme was austerity/deficit/tax that did not bring the desired level of change in numbers. Capitalization of Banking Sector in Europe is an unresolved issue. The austerity theme has clearly backfired as rising unemployment does not support the idea of cut in spending. Deficit remains at a very high level because of the shortfall in revenues collection, as business did not grow.
Hence, G-20 nations opted to raise new slogan of “Growth and Jobs Creation”. Interestingly austerity, deficit, tax, growth and Jobs creation are all inter-connected with each other and no progress is possible if the economy lacks to perform in one single area. The major factor behind the entire success story in US & Europe is due to injection of free money to banks, financial institutions and hedge funds and extension of maturities by increasing the duration or else nothing has changed in real sense.
In fact the tapering talk by Fed has already given shiver to most of the emerging market forcing Indonesia to raise its rates. Brazil raised its interest tares twice by 50 basis points in July & August and Turkey was forced to raise its rates for 1st time in almost 2-years to defend its currency. While India’s RBI took a big move by using its monetary tool on July 16 by increasing banks short term cost of borrowing through Marginal Standing Facility (MSF) rate and Bank Rate each by 200 basis points (2 Pct) to make Rupee less attractive, which is not working in favor of Indian Rupee.
This week market will once again start focusing on various Fed officials speeches and will be looking at the US economic data’s. Tapering in September would confirm that it was a pre-planned FED strategy to start its unwinding program and the economy had little to contribute towards the FED move unless it worsens. I think if we look at the 10-year US bond yield at 2.90 pct, which gives a better picture about the trend due to the size of bond market, it points towards tapering. Basically the question on tapering is when, not if, September or later. This time Fed language will be of key relevance about its forward guidance strategy and Chairman Bernanke’s press conference could add the spice. Later next month, Fed minutes will provide more clarity on the subject.

GOLD @ $1390.65 = It was another successful week, as my gold target of $ 1365 was met with ease. Though payroll fell this week, I do not see any reason for further gold gains unless Syrian unrest flares-up. Hence, any up move should be short-lived.
Identical strategy is recommended for next week. On the upside only break $ 1408 would risk for $ 1420. However, fall below $ 1375-80 will encourage for more losses, break of $ 1345-50 is required for a test of $ 1335.
EURO @ 1.3177 = As per expectation Euro met with strong resistance and failed to surpass 1.3260 to hit the lows of 1.3105. Trading remained within a narrow band, as market is still trying to determine the trend.
Despite fall in US jobs, Euro could not make big gains and initially should remain under pressure. In the absence of any major data trading will be held on technicals. Euro may continue to struggle to move beyond 1.3260-80 and only break would encourage for a test of 1.3330 levels, which is not a preferred move. See risk for a break of 1.3080-90 levels for 1.3020-40 or possibly 1.2955. Range for the week 1.2950 – 1.3380.
GBP @ 1.5623 = Last week Cable succeeded in gaining upside momentum after penetrating 1.5570 levels to hit and surge beyond target 1.5640 to test topside of the range.
This week, initially, Cable should find buyers around 1.5550 levels for a move and test of a 1.5690-95 levels and needs to clear for 1.5740, which may not be possible on 1stattempt. If breaks support levels could hit 1.5440. However, any move towards 1.5750 zones would be opportunity to short cable. Range for week 1.5520-1.5750.
JPY @ 99.08 = Last week, I did warn that there are many factors driving Japanese currency. It did touch the highs of the range and briefly test 100.25 levels before gaining sharply.
In the absence of any news from Syria, Yen should gradually lose its strength or else any negative news of flare-up could see rush for JPY buying as a safe haven currency. The levels to watch is 98.20, as long as it does not break, there is possibility for another test of 100.30-50 zones. Failing to hold the resistance level of 98.20 on Syrian news would risk for 97.45 or 95.70
Range for the week 98.20 – 100.80.
AUD 0.9177 = Aussie up move was against my expectation. But this rally should not surpass 0.9270-80 levels for a down move or else will test 0.9320. I am expecting a gradual dip. AUD needs to break 0.9105 for a test of 0.9050 or 0.9010.  Range for the week 0.8980– 0.9320.

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