It was an active week with Reserve Bank of Australia slashing its bank rate by 50 basis point. US economic data’s during the week remained soft as manufacturing sector slowed. US service sector was weak, jobless claim fell more than forecast and finally on the last day of the week, US employment data suggest that US economy could create only 115.000 jobs against market expectation of 160.000.
The fall in April US Non Farm Payroll could not given much respite to the ailing Euro due to upward revision of last month’s Payroll number to 154K from 120K.
Last week’s European data was disappointing too and weak German data gave further blow to regions currency, as sentiment shifted towards need of imminent rate cut in the coming months. ECB normally does not act on single economic data. They will wait for more clues after the release of European data and if inflation pressure easies ECB may not hesitate to slash its rates next month.
This week, fate of European currency will largely depend on the outcome of 2nd round of French Presidential election result because unless Sarkozy is able to make a comeback Euro may remain under severe pressure due to Hollande’s disagreement with the current European economic policy.
Another major event brewing up is the state election in Germany and if Merkal’s position weakens, it could provide further blow to Euro, so the European currency will continue to hang on the knife edge. But one thing is for sure that Sarkozy’s surprise win would give Euro 150-200 pip upward push, European bond market will get the lift and share prices will surely get boost.
European data last week was disappointing too due to worsening job condition in the Euro-zone and weak German manufacturing data gave further blow to the region’s currency, as sentiment shifted towards imminent rate cut in the coming months. ECB normally does not act on single or couple of economic data. They will wait for further clues, which will be known after the release of more European data and if inflation pressure easies ECB may not hesitate to slash its rates next month.
In my previous month’s note I wrote that weak AUD would give price advantage to the Australian economy. It will give boost to exports. Lower rate would encourage business activities, as it reduces cost of doing business. Australia is a good tourist spot and is an attractive place for foreign students, so weak AUD would overall benefit its economy. But demand from investors is likely to persist that will push the Australian currency higher as Central Bank Rate of 3.75 pct is too attractive in zero global interest rate environments.
This week, market focus will remain tilted towards economic reports to know the real progress, as global economic data is once ringing alarm bells. Many traders/investors have started to believe that QE3 is unavoidable and hence, will try to get clues from FED official due to deliver talk next week.
Some of the important weekly economic events are on Monday a higher German Factory is required to give some confidence to the German economy. Tuesday and Wednesday will be comparatively a quite week as there are no major economic data’s. But on Thursday, Jobless claim and US trade deficit will be keenly watched as deficit it is likely pop up. On Friday, only higher than expected German CPI & UK’s PPI will be positive and later US producer price index (PPI), Core PPI and Michigan consumer sentiment will depict about the growth situation in USA.
GOLD @ $ 1642 = It turned out to be another successful week as Gold fizzled out around $ 1672 and could not make further gains to hit and break my given target of $ 1635 to test the lows of $ 1626.
Although there are talks of 3rd quantitative easing soon, but I am not willing to buy this idea as US may not be willing to risk inflation with more cash. QE3 is the only hope for gold Bulls or else April-May demand for gold in India plunged, as sales fell to 35 tonnes as compared to last April sale of 95 tonnes.
Tax on gold remains an unresolved issue and Indian Rupee has weakened more than the tax increase and Rupee will remain under pressure due to high deficit and global economic slowdown. India is too dependent on foreign money and Chinese economy continues to struggle and looking for stability. So, I consider hope of QE3, as opportunity to sell gold.
Gold needs to break $ 1655 to test $ 1662-65 zones, but any upside move would be opportunity to Sell as break above $ 1675 could delay the down move. I am looking for a break of $ 1630 that would pave way for a test of $ 1615. Down side break of $ 1600 is intact
EURO @ 1.3083 = It was another good call as Euro failed to move beyond 1.3298 and nicely fell below my given target of 1.3150 to hit the lows of 1.3080. The real test would be a fall below 1.2980 that would pave way for 1.2905 and break of this level would encourage for a test of 1.2775. On the upside break of 1.3190 is required for a test of 1.3250 and break here risk for test of 1.33. Ranges for the week 1.2770 – 1.3250
GBP @ 1.6146 = Cable is losing its gloss and I see it struggling to make a move beyond 1.6250. A break of 1.6105 would encourage for a test of 1.6065 and I will not be surprised if Pound Sterling dips further to test 1.5950. Ranges for the week 1.5950 - 1.6280
YEN @ 79.84 = Another prefect move in line of my forecast. Yen has support at 80.50 a break could further weaken Japanese currency, but has strong protection around 81 areas. I am looking for break of 7940-50 zones that would pave way for a test of 79.15 or probably 78.80. Range 78.50- 81.20
CHF @ 0.9179 = Swiss Franc continues to hover around 1.20 floor against Euro, which may not be easy to crack as SNB will not hesitate to the floor. However, if Euro remains under pressure floor will be tested. SFr has strong resistance around 0.9105 and only break would encourage for 0.9060. I am looking for a test of 0.9240 and break would push Swiss currency towards 0.9290. Ranges for the week 0.9050 – 0.9305.
EurO - GbP & GoLD uP, TheN DowN ApR 30 – MaY 04