During the week, the focus of the global financial market remained tilted towards FED Chairman Bernanke’s speech. He appeared on 4-different occasions, as market tried to gather clues about the direction of US and Global economy.
Initial reaction after his 1st speech to National Association for Business Economics (NABE) was that he supports his low interest rate policy that FED may continue with its easing policy stance and would soon opt for another quantitative easing.
Stock market soared on his comment. Gold prices roared gaining over USD 20 in a hope through QE, excess liquidity that will create demand for gold. US Dollar eased, as Bernanke voiced his concern about future job condition that will entirely depend on good growth rate.
But Bernanke soon realized that what impact his sentence can make that can easily shift market sentiment. In his next three speeches to University students he maintained a balance and did not allow market to guess by giving balanced and correct assessment about the US economy.
He showed his concern about inflation due to rising oil prices, but his priority was clearly visible like any other sensible financial administrator that he wants to reduce unemployment, which could only be attained by maintaining above average growth rate.
Bernanke knows that US economy has a long road ahead. He is aware of the debt cost the nation has to pay by hiking interests. He understands that high interest rate will increase pressure on country’s debt, which is not affordable. He was clearly concerned with the pace of economic growth and his attitude was dovish.
Meanwhile, despite hindrances European policy makers have so far showed their responsibility to meet challenges. They have successfully reached agreement on quite a few demands and have made commitments to implement austerity measures to ease Euro zone crisis.
Promises and commitment made by the effected Euro-zone nations has given boost to raise European firewall from Euro 500 billion to somewhere between Euro 700billion to 800 billion, though these funds may not be enough if Spain or Italy asks for bailout because of their debt size..
In a major austerity move this year Spain decided to cut its budget by 16.9 pct (Euro 27 Billion) to reduce its deficit to 5.3 pct. Corporations will have to pay more taxes that will increase its revenue collection. This will help Spain to obtain funding against its bond and will also help to bring stability in its bond market.
As major European events seemed to have been settled, market this week would once again start focusing on economic data.
On Monday there is tall list of data release from Europe. But market will be keenly waiting for the release of ISM manufacturing data from USA, which is key US economic indicator that provides clear picture of development in private sector. The importance of this economic number is that strong data dampens the prospect of another easing, whereas weak numbers strengths the case of continuation of easy monetary policy.
On Tuesday, Australian Central Bank will take key decision on its interest rate. I will not be surprised to see a 0.25 basis point cut in rate due to signs of weaker Australian economic growth. With indication of softer Chinese growth and falling global commodity prices, strong AUD could further hurt its exports. Hence, Australian Central Bank (RBA) has good case to slash its cash rate from 4.25 pct to 4 pct.
On Wednesday, ECB will take interest rate decision, which will be followed by press conference. No surprise is expectd as rate should remain unchanged
On Thursday, UK will announce its Industrial and Manufacturing production that will be followed by BOE’s interest rate decision, but UK is in no mood to hike its rate despite extremely high inflation rate and is likely to continue with its ongoing QE policy.
On Friday, US Nonfarm Payroll and US Unemployment data will provide better picture of US economy.
GOLD @ $ 1668 = Gold that got 20 Dollar boost by the FED Chairman’s statement was short lived after more clarification. It came under renewed selling pressure after ongoing Indian bullion and jewelers strike and China slowdown. By the weekend it made some recovery on the news of increase in European firewall, but gold investors will be looking for some more clues.
One major development that could possibility push gold prices higher this week is suspension of 14-days protest by the Indian bullion and jewelers.
On Monday morning, I am expecting Gold to stay above $ 1664 and may see it hitting $ 1673-75 levels. This week I would prefer buying gold on dips around $ 1662-64 if seen, as bias will remain on the upside. A break of $ 1678-80 will push gold to $ 1685 but $ 1704 in the key level to watch for next up move. On the downside major protection is at $ 1648 Range for the week $ 1655 - $ 1690
EURO @ 1.3338 = This week bias for Euro is on the upside, but needs to clear resistance 1.3395. Only break here would push European currency towards 1.3450. However, failing to clear resistance would risk for a drop to 1.3280-00 zones before making another upside attempt. Any move towards or beyond 1.3450 would be good opportunity to sell Euro because the next big challenge for Euro would be to surpass 1.3490, which may not be possible unless US economic numbers badly suffers. Range for the week 1.3180 – 1.3490
GBP @ 1.6004 = Cable could initially maintain its strong tone and buying on dips would be the preferred strategy, as it has strong support around 1.5925. With its next up move the British currency will be entering a risky zone. On the upside strong resistance will found around 1.6080 and only break here would encourage for 1.6120. However, on the downside it has protection at 1.5870. Range for the week 1.5820 – 1.6120
YEN @ 82.78 = As per my weekly call, it was another successful week. Yen weakened to hit the highs of my projected level 83.33. This week I am looking for a break of 82.20 that could encourage for a test of 81.70. However, I will not be surprised to Yen falling to make further gains and a bounce back to 83.50 could be a possibility unless 81.20 surrender. Range for the week 81.40 – 83.80
CHF @ 0.9018 = Swiss Franc will continue to show its muscles and will probably test SNB’s patience, as it is very close to the parity against Euro. I see continuation of tight range as buying of Swiss currency on dips to remain intact unless Swiss Central Bank surprises the market. The currency will be bought around 0.9060. A break of 0.8980 will encourage for 0.8655. Only break of 0.9120 will ease the buying pressure. Range for the week 0.8950 – 0.9110.
GoLD tO GaiN, EurO RallY tO FizzLE OuT - Mar 26-30