LTRO announcement will be the big even of the day and there are lot of guess work, talk and analysis about the number and possible impact on the market. The December LTRO tranche did work well in the sense that it gave some sort of stability to European banking system that helped in stabilizing the bond market to a certain extent, though Portugal and Greece CDS are still record high.
There is lot of pressure from G-30 to put extra funds in IMF kitty and expectation is high that this time LTRO could be bigger than the 1st one. In my December write-up I mentioned that this move by the ECB is quantitative easing (QE) and injection through LTRO is yet another QE stance by the ECB. It’s a virus that came from USA and has now spread all over the globe, for which a price has to be paid in future.
I am myself not too sure that how should the react. But my immediate reading says anything over EURO 500 billion will considered positive that will give more space to EURO and GOLD. Anything around EURO 400 billion or below will give market enough reason to go for EURO and GOLD correction.
Until LTRO announcement sentiment for EURO and GOLD should remain positive, so buying EURO and Gold on dips close to chart support levels may not be bad idea, but watch out for rumors and news flashes and be quick to act.
However, market will remain choppy.
EURO @ 1.3372 = Buying Euro on dips around 1.3450-60 is preferred. Jumping in the middle of the range could be risky proposition. Prior to LTRO announcement we may see a test of 1.3520-40. STOPS is 1.3420 surrenders. On the upside 1.3580 is the crucial level to watch.
GBP @ 1.5923 = Cable buying around 1.5905-15 looks good, with STOPS if 1.5870 breaks for 1.5965-70. Next level to watch would be 1.6065
GOLD @ $ 1786 = Buying on dips preferred. Should find base around $ 1780-82 for a break of $ 1793, a break here could push Gold to $ 1798. Crucial level to watch is $ 1810. A break of $ 1770 will see sharp selloff.
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FEB 28 - EurO & GoLD – CaT & MouSe GamE to ContinuE