The announcement by the Federal Reserve that it plans to keep interest rates low through till at at least 2014 counterbalanced some weaker than expected economic growth figures last week to keep investor sentiment more optimistic. Furthermore, developments over the weekend suggest that a debt swap deal between Greece and its private creditors is nearing as bondholders appear to have accepted calls by European finance ministers to accept lower interest rates. An undisclosed source cited by Bloomberg has said that creditors are willing to accept an average coupon of as low as 3.6% on new 30 year bonds. The EUR peaked at above 1.3235 in trade on Friday.
However, all is not well in Greece. The IMF’s Christine Lagarde has said, “We’re not terribly positive about what has been done (in Greece)”. There are still fundamental differences of opinion between Greece and other members of the Eurozone over how to manage Greek budget decisions. European policy makers and, in particular, the Germans are calling for the creation of a commission with the power to veto budget decisions by Greece. However, the Greeks have rejected such a plan as they see it as being contrary to national sovereignty. As trading resumed in Asia today it was all one way traffic as markets stumbled on speculation that European leaders meeting today will face difficulties in their efforts to resolve the ongoing debt crisis. The EUR has retreated to as low as 1.3110 while the Australian dollar has lost more than a cent to 1.0550 as the USD surges.
Equity markets rose for the fourth consecutive week last week after the announcement by the Fed which was seen as indicative of an another imminent round of quantitative easing. However, the week has not started so well with Asian stocks closing lower as European leaders meet for another summit. The MSCI Asia Pacific lost 0.8%. In Europe, signs of Greek resistance to outside influence in its budgetary affairs, rising bond yields and the collapse of Spanair has seen European bourses trade down almost one percent.
Commodities News
Commodity prices firmed ever so slightly on the last trading session of the week with the CRB index closing 0.15 points higher at 317.57. However, the trend today has been decidedly lower. WTI Crude oil has lost 0.4% today to trade at $99.15 as International Atomic Energy Agency inspectors arrived in Iran for talks on Iran’s nuclear program. Precious metals also lost ground continue with gold falling 0.7% to $1,723 while silver lost 1.9% to $33.15. Soft commodities were broadly weaker while copper lost almost 2%.
GOLD
GOLD continues to consolidate and move higher after last weeks boost by the Fed Reserve which now sees gold firmly in the $1,700 territory. The range on Friday was $1,713 to $1,740 and it opens the morning near the top of this range. The USD continues to remain weak and whilst there are no other shocks to the financial system gold will continue on its merry way high-er back towards its all time highs above $1,900. We continue to hear of central banks and semi-government organisations diversifying into gold and the very firm bounce off critical support at $1,630 has us confirm our bullish bias on the metal in both the short and medium term. Certainly a retracement towards $1,700 is possible but it will be a temporary move as gold moves aggressively above resistance at $1,750 to target a test of $1,800. For today look for any dips towards $1,720 as an opportunity for those who would like to initiate new long positions. Resistance at $1,655 should hold for today.
FX News
All eyes are on the EU Summit today as the Greek debt deal is thought to be largely in place. Except for USD/JPY the USD gained pretty much across the board on safe-haven demand. AUD/USD also took some beating after Fitch put major Australian banks on a negative ratings watch. GBP/USD is also losing momentum after 10 consecutive sessions in positive territory.
EURUSD
Just before New York close on Friday, Euro reached 1.3235 (highest level since Dec) before giving up gains on Monday on the back of short-term profiting taking and anxiety over the EU Summit. After a five-day advancement in a row, Euro needed to take a breather before deciding on the next move. Market players seem content with the recent rise but are also wary that the ‘doom and gloom’ is nowhere near over in Europe so a reality check is needed hence re-positioning of their portfolio. Also on radar today is German CPI – Expected 2% against previous 2.1% (YoY). Euro may trade within the ranges of 1.3080 – 1.3178.
USDJPY
After reaching 78.27 last week on concerns over Japan’s first monthly deficit in nearly 30 years and a decline in growth outlook, USD/JPY started this week in familiar territory again 76.60 – 76.80. Other than Japan’s Jobless rate tomorrow, there isn’t much news to trade with. Perhaps of more interest is the EUR/JPY movement where Japanese officials have recently hinted concerns over its rapid decline against the JPY. We think the market may test ‘BOJ water’ this week with sub 76.00 and we dare say 75.00 to see if there is any ‘intervention bites’ around. For the rest of Monday market may range 76.54 – 77.12.
AUDUSD
AUD/USD took the positive tone out of European to retest the recent highs during the European session to find new profit taking offers around 1.0670 enough to cap the mo-mentum. Weaker than expected US GDP 4Q results took the shine off the markets with the AUD falling sharply to 1.0600 before setting a base. The decline was short lived with the markets disregarding Fitch’s downgrading of five Eurozone countries and this was enough to start a short covering squeeze into the weeks close. Early Monday morning selling has the price opening the main part of Asia at 1.0639. With a lack of Asia zone data the markets will be reading the mixed reports from Fridays US session and the choppy tone looks set to con-tinue for another session. Offers should re-main ahead of 1.0700 at the present time as bears continue to look for resistance to sell into whilst the bulls are happy to sit and wait at present. 1.0450 still remains the pivotal level on the downside at this stage.
Compass Global Markets
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