It turned out to be unstable week, as global financial market struggled to find direction after last Tuesday’s release of China’s economic data confirming slowdown of its economy.
However, as market was looking for clues, it was late weekend rumor that came to the rescue and gave boost to the world market and this time again it was China in the news headline that gave glimmer of hope that it may slash its Cash Reserve Requirements (CRR). To boost to its slow economic growth, since December last year, China has cut its rate CRR on two occasions.
I am not too convinced that CRR rate be will slashed in short-term because what market is overlooking is that last week China had already announced that to boost its rural credit, effective March 25 it will selectively cut reserve requirement that could benefit more than 500 branches and is expected to release/free Yuan 23 billion (USD 3.7 Billion).
Meanwhile, during the week Australian Dollar became the first casualty that succumbed to the news of weak Chinese numbers, as its economy is heavily dependent on trade with China being the largest trading partner. News of slowdown later dragged down the global financial market, as China, which is the 2nd largest world economy is presently considered as a major global economic driver.
During the week, Bernanke gave another jolt to the market with his statement to the House Government Reform Committee that European sovereign debt crisis is not over and more work needs to be done. Such statement further confirms that European woes are not over and there are more hurdles to come.
But it was not all over yet, as weak Chinese Purchasing Managers Index (PMI) announcement was the second blow of the week that again unsettled the market. This time Global equity market, oil and gold were hammered badly.
There are quite a few economic numbers due this week, but market will be focusing on German IFO announcement on Monday that may give some idea about business sentiment.
On Tuesday, UK quarterly GDP will provide guideline about the economy, though UK’s budget seemed to be a balanced one despite extremely tough conditions. Notorious US Durable good order is due on Wednesday that will tell about the economic activity, market will be keener to know the growth in consumer sector.
Thursday’s US economic data will tell more about US economic gains as jobless claim will give some idea about the progress in US Job market and quarterly US GDP data will tell about overall growth picture. But more importantly market will listen to Bernanke’s speech. He will surely choose his words before he utters a word because he knows that one loose sentence can rattle the financial market.
GOLD @ $ 1661.50 = There are some interesting developments that favors gold. Although, Indian Bullion and jewelry traders protest is not over as yet, but the Indian government has decided to reduce tariff value of gold import, which is the base price on which customs duty is determined. This may ease tension to some extent. In 11-months until February, India’s gold import surged by almost 40 pct to around USD 56-58 billion. India’s fiscal year ends in March.
While China CRR cut rumor and US Bond gains also helped gold to make USD 20 recovery. More importantly, any word or no word on QE3 from Bernanke on Thursday could once again spark the market and drive trades crazy.
This week bias for gold will be on the upside and therefore, strategy will be buying on dips around $ 1652-55. It has support around $ 1645, which should hold or else $ 1636, which is not a favored move. Break of $ 1668-70 will pave way for 1.678-80, but only break here would encourage for $ 1687. Range for the week $ 1642 - $ 1690
EURO @ 1.3269 = This week’s preferred strategy would be sell Euro on the rise. Euro could make an upside attempt but needs to crack important resistance level of 1.3325 - 40 for 1.3390, which may be easy and failure to surpass resistance level could push Euro down. Break of 1.3180 will test support level of 1.3110, if fails to hold could test 1.3010. Range for the week 1.3010 – 1.3390
GBP @ 1.5868 = I would prefer buying Cable around 1.5810-20, but will keep a close watch on 1.5750 or else 1.5680 before up again. A break of 1.5930 is required for more gains that would encourage for a test of 1.5990. A move beyond would push for a test of 1.6045. However, beyond 1.5950 I will remain cautious because as we approach 1.60’s level, risk will increase for GBP’s fall. Range for the week 1.5720 - 1.6045
YEN @ 82.33 = For the last 5 week’s our view on Yen has been quite accurate. Last week I warned Yen sellers to refrain from further selling as will make sharp gain. After hitting 84.07 JPY gained 210 pips, but is unlikely to make further sharp gains, as the Japanese currency has good protection around 81.40. Break of 82.80 will push the currency down to retest 83.40-50 zone. Range for the week 81.40 – 83.80
CHF @ 0.9078 = Swiss currency has strong resistance around 0.9020-40, should not surrender. Only break of this level could test 0.8990. But risk is for a drop from resistance area to 0.9120. A break would encourage for a test of 0.9170. Range for the week 0.8970 – 0.9210
EurO – GoLD BiaS UpSidE, MarcH 19-23