When Europe started to look a done deal after settling all major issues, paving way for Greece bailout package that increased hope to bring stability in Europe, it was FED’s Tuesday FOMC release that had unsettled the market.
Despite Bernanke’s dovish stance on US Interest Rates that he sees no change until 2014, Tuesday’s FOMC hinting that there are some inflationary pressure due to rising oil, but happy with economic recovery and improved US job market condition and not mentioning of QE3, Gold and Bond market reacted sharply. And keep in mind that Oliver twist is due in due in June 2012.
It was Tuesday’s FED easy approach towards US economy that rattled the US bond market, as hopes for QE3 diminished when not a single word was uttered about quantitative easing. 30-year US Bond took the lead by extending losses spilling into 3 years, 5 years and 10- year’s bond respectively.
With a bullish view, 30-year bond market has been almost stable for the past 30-years. Though I do not have the figures to tell you the size of 30-year bond, but since it had impacted the overall bond market, FYI, imagine that the total size of Major Foreign Holding of US Treasuries jumped from USD 4.436 Trillion in Dec 2010 to USD 5 Trillion in December 2011.
If the sentiments start building up that US interest rates will rise sooner than Mr. Bernanke thinks then this will have bigger impact upsetting many areas, as US Dollar provides carry trade opportunity to traders/investors will surly deprive them of this money making facility.
It’s a major development that despite improved market condition in Europe, US Dollar is dominating and US Treasuries and Gold is taking the beating. If the sentiment continues to prolong the trend may last, USD will gain, bond and gold to suffer. So keep an eye on rising oil price and inflation numbers and US Bonds for more clues.
The current situation provides one very important clue that the fate of future financial market will be totally depended on Money Printing (QE), which is nothing different than cortisone injection and therefore, without note printing the global market could collapse.
GOLD $ 1647.60 = Gold could still find top around $ 16655-60 zones for another test of $ 1634. Needs to make a clear break of $ 1680 to ease bearish sentiment
EURO @ 1.3030 = On the upside only break of 1.3060 will encourage for a test of 1.3090 that could pave way for 1.3140 another key resistance level. Risk is that EURO may not have enough legs to push much beyond and suffer losses to test 1.2980
GBP @ 1.5650 = Prefer buying around 1.5640 with Stops if 1.5610 surrenders for 1.5690 or 1.5725
March 14 - GoLD tO RemaiN WeaK – BuY EurO & GbP oN DipS