Last week, normal trading activity was witnessed in the market, uncertainty is still looming, as global economic data suggest that growth pace is not at a desirable level, China slowdown is worrying, Spain and Greece remains a big threatening factor. In US, after surprisingly positive job data that showed unexpected drop in unemployment rate to 7.8 pct for the first time in 3-years, was not enough to give boost to the global financial market, as sentiments are mixed about the economy tough DOW Jones and S & P enjoyed its upside journey hitting 5-years high. In the foreign exchange market US Dollar could not benefit from strong job data as it remained weak.I think the factor behind USD weakness despite steady employment data was US fiscal deficit of USD 1.1 trillion, which is the 4th consecutive year of over a trillion Dollar shortfall. Market is responding positively after Draghi’s Thursdays press meeting that was followed after the monetary policy announcement in which ECB President reaffirmed his earlier pledge to support European market at any cost by using his new tool that will allow them to buy unlimited amount of sovereign bond as and when required. Though this is all verbal that has many strings attached, but so far it is working well. This week in the absence of any major European data, market will be focusing on European summit in Luxemburg, in which regions finance minister will be meeting in a two-day gathering that starts on Monday. Bullish hopes for Euro are still live in anticipation that Spain will soon ask for a bailout and hence, it’s a combination of factor that is helped by US fiscal cliff lingering due to coming US elections, which is not helping the US currency. Though fiscal cliff is not going to prolong and collapse, as some sort of compromise/understanding will be reached before its expires. But market has to remain on 24-hours alert because any news that pertains to bailout request or delay will surely drag the market accordingly.In this situation of European uncertainty with Aussies, Yen posing weakening stance, Pound Sterling could be the beneficiary this week as investors tilt could be towards the British currency and therefore, buying on dips will be preferred strategy.Since there is no major economic data this week except for FED’s Beige book due on Wednesday that will give more clue about the progress of US economy that is being gathered by 12-Federal Reserve Districts through information received from analyst, financial experts and business community. Friday’s Michigan Consumer Sentiment Index announcement is another important data that will tell more about the economic activity and if the consumer are willing to spend more or not.However, Monday’s HSBC China Service PMI will set the pace for the week, a number above 50 depicts positive sign for the Chinese economy, but if the number falls below last figure of 52, this could be bad news for China’s trading partner.
GOLD @ $ 1780.50 = Though USD did not respond positively to the job data, but gold could not hold its strength and had to shed its weight after the US job data, as FED has clearly stated in its report that they will be buying bonds with USD 40 billion monthly target as they want sizable drop in Us unemployment rate. Here the question is that is the drop sizable enough to clam FED, but US Central Bank would certainly not cut short its bond buying plan at one single go, but may consider avoiding sufficient liquidity injection to discourage inflationary growth. This could be bad news for gold. For now only Spain’s bailout request could make gold Bulls wishes come true, because further delay for bailout request will be negative for gold or unless we get barrage of bad US economic data that may help gold to continue its upside journey. Bias this week is on the downside.
EURO @ 1.3036 = The upside rally did occur but 1.3080 was well protected. I still see this level as key and break would suggest Euro re-entering upper zone.
GBP @ 1.6134 = Bias to remain on the upside.
JPY @ 78.66 = we saw the expected move happening hitting the top around projected area of 78.80-90 zones. However, I do not expect 79.20-40 to surrender with ease and expect Yen Bulls entering around those levels to purchase Japanese currency.
CHF @ 0.9293 = The expected move in CHF did occur but fell short of target. This week we could see buying of Swiss Franc on dips.
AUD @ 1.0184 = The Aussies came under renewed pressure as the Australian economy is showing signs of exhaustion. RBA has suddenly started sounding dovish and market has started pricing more rate cut probably succumbing to the weakness of Chinese economy, which is struggling to make a comeback despite substantial liquidity injection and rate cut. AUD may find cap.