FX and Gold - Weekly Outlook

It turned out to be an unstable week as global financial market struggled to find a direction after Chinese manufacturing activity shrank for a fifth straight month in March and the eurozone economy is showing new signs of wilting. Only the US is showing signs of vigour among the world's top economies, underlined by data showing jobless claims fell to a fresh four-year low.
However, as market was looking for clues, it was late weekend rumour that came to the rescue and gave a boost to the world market and this time again it was China in the news headlines that gave a glimmer of hope: Beijing may slash its Cash Reserve Requirements (CRR). In order to boost its slow economic growth, China has cut its CRR rate on two occasions since December last year.
I am not too convinced that CRR rate will be slashed in short-term because what market is overlooking is last week's announcement by China that it will selectively cut reserve requirement that could benefit more than 500 branches to boost its rural credit, effective March 25 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 a slowdown later dragged down the global financial market, as China, which is the 2nd largest global economy, is presently considered as a major global economic driver.
During the week, Fed Chairman Ben Bernanke gave another jolt to the market with his statement to the House Government Reforms Committee that European sovereign debt crisis is not over and that more work needs to be done. Such statement further confirms that European woes are not yet over.
A weak Chinese Purchasing Managers Index (PMI) announcement was the second blow of the week to the market. This time global equity market, oil and gold took a battering.
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 some guidelines about the economy, though UK's budget seems to be a balanced one despite extremely tough conditions. Britain should at least avoid a recession, but hopes that the UK economy will pick up momentum were dealt a blow on Thursday with news that retail sales in February suffered their biggest monthly fall in nine months. Notorious US Durable good order is due on Wednesday that will shed light on the economic activity. The market will be as keen as mustard to know the growth in consumer sector.
Thursday's US economic data will tell the market more about US economic gains as jobless claims will give some idea about the progress in the US Job market and quarterly US GDP data will paint an overall growth picture. But more importantly, market will listen to Bernanke's speech. He will surely be required to choose his words carefully because he knows that one loose sentence can rattle the financial market. It is, however, important to note that St Louis Fed President James Bullard has underscored a critical point that the US Federal Reserve should be wary about "over-committing" to an ultra-easy monetary policy that has served the economy well in recent years but could be detrimental eventually.
GOLD @ $ 1661.50 = There are some interesting developments that greatly favour gold. Although, Indian bullion and jewellery traders' protest is not over as yet, 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 percent to around USD 56-58 billion. India's fiscal year ends in March.
While China CRR cut rumour and US bond gains also helped gold make a USD 20 recovery. More importantly, any word or no word on QE3 from Bernanke on Thursday could once again drive traders 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 favoured move. A break of $ 1668-70 will pave way for 1678-80, but only a break here would encourage for $ 1687. The range for the week is between $1642 and $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 levels of 1.3325 - 40 for 1.3390, which may be easy and a failure to surpass resistance level could push Euro down. A break of 1.3180 will test support level of 1.3110. If failed to hold, it could test 1.3010. The range for the week is between 1.3010 and 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, the risk will increase for GBP's fall. The range for the week is between 1.5720 and 1.6045.
YEN @ 82.33 = For the last 5 weeks, our view on Yen has been quite accurate. Last week, I warned Yen sellers to refrain from further selling as this currency will make a 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. A break of 82.80 will push the currency down to retest 83.40-50 zone. The range for the week is between 81.40 and 83.80.
CHF @ 0.9078 = Swiss currency has strong resistance around 0.9020-40; it should not surrender. Only a 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. The range for the week is between 0.8970 and 0.9210.