UsD uP - GoLD DowN ApR 16-20
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
http://www.forexstreet.net/profiles/blogs/usd-up-gold-up-but-later-...
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Comment by naivetrader1 on April 15, 2012 at 8:21am -
Stretching the horizon a bit..... AUD appeared to hv significant +ve correlation with equities (eg FTSE & DAX). 'Just wondering, if there's any case for rebound of these instruments, albeit in a choppy manner, to make a lower high, on daily chart & start falling in few weeks (sell in May & go away?).
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Comment by asad rizvi on April 15, 2012 at 10:55am
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Jason, it is the size that matters. NOK, or other Nordic currencies, NZD, AUD or Loonie (CAD) is not liquid enough to cater the world demand, which is why it is not even 1 pct of the global Fx Reserve Composition. Investors do know that they cannot play smart with the currencies of small economies because if they interfere, Central Banks will not spare them.
Since you have worked for a leading bank you must be aware that traders do take chance with huge position to make big profit to pocket hefty bonuses. There are all well connected and if they lose the job due to losses, they switch their jobs because they know they will be thrown away by the bank for incurring huge losses, which on many occasions violates bank guideline. This is not practiced quite often, but does happen. Such incidents are exceptional.
To quote an e.g. about 22 years ago I was associated with one of the largest US bank (don’t start guessing my age, I am 55 & I started trading at the age of 25 and I am not trained in Studio Apartment), the trader of my bank told me that a New York currency dealer took large position on one of the above mentioned currency and the market when wild. New York traders presented the trader a knife with title “Butchers Knife”. Next day the bank was warned by the Central Bank and was told that if next time it happens they will make sure that they will teach the position taking bank a good lesson. Therefore, there is always a limitation and opportunities are few.
Now what are the choices for traders/investors? Food prices are down, gold and silver hit the top and are down by 15 and 28 pct respectively. Reality about gold is that its non interest bearing asset and the day global interest rates start rising, investment will shift into interest bearing asset, which may not look a possibility now, but it will take no time to see a shift in sentiment. So banks holding gold position will have to justify their holdings that have averaged over 11 pct of their total reserves. So Gold target of $ 3000 is a wishful thinking and anything above $ 2000 would be too risky to hold.
I have something else to point that quite a few countries with large deficit is holding gold, once their balance of payment position deteriorates gold buying or holding will make no sense.
Investment in Real estate makes sense as long as it is for accommodation purpose, but with so much global uncertainty investment in real estate is a big risk. Chinese housing market is struggling, as obtaining loan is a difficult task.
In USA interest rates are down since over last 10-years, but its housing market is yet make recovery. In UK housing market there was some interest shown by the Middle Eastern investors, but small investment does help economy. In Spain downfall in real estate business has clobbers business sentiments with unemployment running as high as almost 23 pct. Real estate boom in East European economy has thinned down.
In Currencies, Swiss Franc is on the edge of parity versus Euro @1.20 set by SNB. JPY melted losing 11 pct after BOJ flooded the market with liquidity, but is on the recovery mode. So what are the other options for investors? In this situation investment in AUD.KIWI, CAD & LOONIE sounds good, but market realizes that they can invest up to a certain extent. So as you mentioned about June Olympics, which is true, GBP is a good bet also because of ½ pct bank rate with inflation at 5 pct plus and being 2nd best economy in Europe, but having no commitment like Germany, which helps the sentiment….GL
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Comment by Jason on April 15, 2012 at 11:16am
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thanks sir for your well written and thought out response.
But i will take some time and think through what you have said.
what you have ,mentioned cannot be more true about manipulation in the markets.
Thank you again for yoyr time in replying.
Very grateful for clarifying.
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Comment by Jason on April 15, 2012 at 12:28pm
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hi sir.
Think what you have mentioned is absolutely true.
I remember an instance almost 10 years ago when my team sold one currency pair in hundreds of millions to move it and close the position in the same session. Think that trade made our budget for that month. Thats the manipulation you are talking about. Thats why i told you its easy to make money when we trade for banks like there is so much financial muscle unlike for retail players, we need to have accurate entries or we will be wiped out by the big boys.
I also remenber an incident then when my boss was away and i was asked to head the desk for 1 week. My colleagues traded a big position in the euro and was caught out and ended up losing almost usd 1 million. I was almost sacked but fortunately we are able to recoup the damage within the week as we have the financial muscle to take new positions. If this thing happen to retail players, we will be wiped out.
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Comment by Gordon Gekko on April 15, 2012 at 12:43pm -
Gold came under heavy selling pressure on Friday, as growing concerns over rising Spanish borrowing costs and fears over China’s economic growth outlook prompted investors to shun riskier assets and move in to the relative safety of the U.S. dollar.
The cost of insuring Spanish government debt against default rose to an all-time high on Friday, after a report showed that Spain’s banks borrowed a record amount from the European Central Bank in March, underlining concerns about the health of the sector. Spanish 10-year yields settled the week at 5.97%, after hitting the key 6.0%-level in early trade Friday, the highest since early December. Similar-maturity Italian yields increased to 5.52%, while Portuguese yields climbed to 12.56%. There have been renewed concerns of further debt contagion in the euro zone in recent weeks amid fears Spain will be the next in the euro zone to require a bailout. The news prompted investors to shun riskier assets, such as stocks and industrial commodities, and flock to the relative safety of the U.S. dollar, which reduces the appeal of dollar-denominated commodities. A weakening euro and stronger dollar have weighed on gold instead. The dollar index, strengthened on Friday to end the week at 80.04. Meanwhile, official data showed that the Chinese economy grew at the slowest pace in almost three years in the first quarter, fuelling concerns over a slowdown in the world’s second largest economy. China’s gross domestic product grew by 8.1% in the three months to March, disappointing expectations for an 8.3% increase, after recording an expansion of 8.9% in the fourth quarter
Data released earlier in the week showed that Hong Kong's gold exports to mainland China rose 20% percent in February from a month earlier. The Asian nation is expected to overtake India as the world's top gold consumer this year.
Elsewhere, one of India’s largest Hindu gold-buying festivals of Akshaya Tritiya starts on April 24. In addition, the wedding season has already started in some parts of India. Gold is an integral part of most Indian weddings. The physical gold market in New Delhi was active this week after gold jewelers in the country ended a three-week strike on April 8 after Finance Minister Pranab Mukherjee pledged to reconsider newly imposed taxes on the precious metal.
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Comment by dev on April 15, 2012 at 6:28pm
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Educational point of view all topics posted above are so interesting...other then technical tools there are many more factors which control the market and understanding the market by combination of all factors is a sign of good trader....Thanks Mt Rizvi once again for valuable topic..
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Comment by kiko on April 16, 2012 at 4:21am
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sir what ur view for euro ?
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kiko, I think I have given my best ;-)
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Comment by Vinod Perkash on April 16, 2012 at 4:40am
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sir whatz ur opinion about aud!! time to buy!!
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Comment by kiko on April 16, 2012 at 4:50am
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gold break 1648 currently 1647 ... should we short now sir
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