It was bad end to the week with US stock market suffering its worst weekly fall in the calendar year, European financial market once again faltered, China’s economic growth was very disappointing, though Australian job condition improved reducing the odds for next month’s rate cut. But the size of its economy is not good enough to boost global sentiment.
Gold moved both ways trading in a $ 50 band and currencies traded in a narrow band. Oil prices eased after talk between couple of world leaders to us oil reserves to cool down prices, China’s economic slowdown further pushed oil prices down.
From financial market perspective, it was a busy week with events all over the global. Europe is once again showing signs of nervousness as Spanish and Italian bond yield gave jitter to the market reminding that the European sovereign debt remained a big unresolved issue.
Bank of Spain Governor added more fuel to the fire by adding that Spain’s banks needed more capital. Spain’s banking problem got the endorsement when its Central Bank confirmed that its country’s bank borrowing from European Central Bank almost doubled in March to Euro 316.3 billion from 169.8 billion in February.
The behavior of Italian bond too is very dubious, which is not an encouraging sign. Signs are becoming quite obvious that the two major European economies may struggle to take strong fiscal measure. Their banking industry is already in hot water so the two-economies will gradually slip towards recession
These are some of the crucial factors that will act as a weak link and will exert pressure demanding more money that will force ECB to consider further quantitative easing. Hence, European currency may once again come under severe pressure.
During the week in USA, Fed’s 12-voting member spoke on different occasions and all of them spoke freely. Fed vice Chairman Janet Yellen’s approach was Dovish like Fed’s Chairman Bernanke, but the remaining members were hawkish is their approach.
My observation is that they all were talking on the same wave length support lose monetary policy. Fed’s top priority is to bring down the unemployment number and if job condition deteriorates and inflation is manageable then accommodation will be recommended or added and if US economy continues to prosper and inflation becomes a monster they may consider reversing their action.
The message is clear that they will not act in haste. Fed voters will be keenly watching future data’s before deciding their next line of action.
Finally, much awaited China’s Q1 GDP data of 8.1 versus last quarter growth of 8.9 pct is very disappointing confirming slow export growth and low domestic demand. But easing case looks difficult because last week Bank of China in its report stated that in the month of March, Chinese bank lending jumped to Yuan 1.01 trillion (USD 160 billion) and was up by Yuan 332 billion, which could mean no more easing and no rate in near term. There are reports of China’s Central Bank allowing one percentage cut to some of the rural financial institutions that became effective from April 01.
Meanwhile, right from the 1st day of the week all eye will be on the US economic data, as retail sales is considered a key data that cover good part of consumer spending i.e., durable and non-durable of consumer spending, which covers almost two-third of the GDP. Retail sales also account for one-third of the aggregate economic activity. It is good for currencies and stick market but bad or bearish for US treasuries.
On Tuesday, German ZEW economic sentiment is important German data that has so far risen for the 4th consecutive time and another rise will be considered positive as it will lend minor support to the ailing European economy. Bad number could further clobber EURO. This will be followed by US building permits, housing starts and industrial production data that may provide more clues about the American economy.
Wednesday activity will be based on European and UK data.
Thursday should be a quieter day with no major global data.
On Friday, IFO is considered a leading German indicator which reflect better picture of the economy and its future trend.
GOLD @ $ 1657 : Three major factors are the driving force behind the gold boom scenario in most recent times, they are Central Bank buying, quantitative easing and excessive demand from China and India. All three seemingly have been pushed to the wall. Major CB buyers are Indian, South Korean, Russian, Thailand, Turkey and Middle Eastern countries. Minus M/E economies others are choosy with their funds, as they were aggressive buyers at lower levels.
China will never come in open market for its gold shopping and is mostly acquiring the metal from its own mines. Reports are suggesting that China’s gold production has almost doubled.
Indian protest has ended, which was more for the sake of face saving as prolonged strike embarrassed Indian government and bullion traders and jewelers were not only losing business they had to pay the incurring cost.
Quantitative easing is the last hope, which is gradually fading. US economic data in the coming days is likely to provide more clues. In a nutshell, I do not see any solid reason to buy gold which is a non-interest bearing asset.
So with prospect of free money in shape of quantitative easing diminishing and with new duty on gold imposed by the Indian government remained an unsettled matter, gold will struggle to make new gains, as selling interest will be often seen.
Gold has strong resistance around $ 1675, which could only be tested on break of $ 1668. However, key on the down side will be break of $ 1648 that will encourage for slide towards $ 1638. Only break would risk for crucial of test support around $ 1628-30. There high probabilities of yellow metals further fall towards $ 1600-10 in the month of April unless it is able to penetrate beyond $ 1690. Range for the week $ 1625 - $ 1675
EURO @ 1.3075 = Euro is likely to remain under pressure and any up move should be used as opportunity to sell Euro unless it clears 1.3250. A break of 1.3150 would risk for test of 1.3190, but Euro should be sold up moves. The level to watch will be 1.2940 a break here will encourage for sharp slide towards 1.2820. Range for the week 1.2820- 1.3250
GBP @ 1.5844 = Cable will have mildly bullish tone against Euro and may not dip at same pace against US Dollar. On the up break of 1.5898 will encourage for test of 1.5940, where it will find strong resistance, though not a preferred scenario. However, on the down side break of 1.5775 risks for a test of 1.5710. But Cable is preferred currency to buy in dips around support area. Ranges for the week 1.5710- 1.5950
YEN @ 80.88 = I do not expect Yen to remain too volatility as seen during last 4-6 weeks. However, as long as the Japanese currency is able to hold support area of 81.90, the currency will be bought on dips. A break of 80.20 will see the currency making further gains towards 79.70. Range for the week 79.40 – 82.50
CHF @ 0.9191 = Swiss Franc has strong support around 0.9120, which should hold for 0.9260, break risk for 0.9350, or else 0.9090. Range for the week 0.9075 – 0.9350
UsD uP, GoLD uP BuT LateR DowN - ApR 09-13