It was a bad end to week in the US where stock market suffered its worst weekly fall in the calendar year, European financial market once again faltered, China's economic growth turned out to be disappointing, though Australian job conditions 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 while currencies traded in a narrow band. According to Forbes, some are pinning the lowering price on a slowing economy in China while others are suggesting that easing of tensions with Iran may be the reason. Then there is the factor of the refineries in the US that have been down for maintenance.
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 yields gave a 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 his country'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 behaviour 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 measures. Their banking industry is already in troubled waters so the two economies could 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 the ECB to consider a further quantitative easing. Hence, the European currency may once again come under severe pressure.
During the week in USA, Fed's 12 voting members spoke on different occasions and all of them spoke freely. Fed vice-chairman Janet Yellen's approach was dovish like his boss Ben Bernanke's, but the remaining members were hawkish is their approach.
My observation is that they all were talking on the same wavelength, supporting lose monetary policy. Fed's top priority is to bring down unemployment numbers and if job condition deteriorates and inflation becomes manageable then accommodation will be recommended or added and if the 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.
Finally, much awaited China's Q1 GDP data of 8.1 percent versus last quarter growth of 8.9 percent is very disappointing, confirming slow export growth and low domestic demand. But an easing case looks quite difficult because last week Bank of China in its report stated that in 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 cut 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 first day of the week, all eyes will be on the US economic data, as retail sales are considered a key data that cover a good part of consumer spending i.e., durable and non-durable of consumer spending, which covers almost a two-thirds of the GDP. Retail sales also account for one-third of the aggregate economic activity. It is good for currencies and stock markets but bad or bearish for the US treasuries.
On Tuesday, German ZEW economic sentiment is important. The German data that has so far risen for the 4th consecutive time and another rise will be considered positive as it will lend a minor support to an ailing European economy. Bad number could further clobber the Euro. This will be followed by US building permits, housing activity and industrial production data that may provide more clues about the US economy.
-- Wednesday's 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 reflects a better picture of economy. It theoretically enjoys the capacity to ascertain cyclical reversals in advance. The financial markets thus closely monitor its publications. But there are some other - such as ZEW, PMI and ESIN survey - reliable sources of information.
GOLD @ $1657: Three major factors are the driving force behind the gold boom scenario in most recent times. They are buying by Central Bank, quantitative easing and excessive demand from China and India. All three seem to have been pushed to the wall. Major CB buyers are Indians, South Koreans, Russians, Thais, and those from Middle Eastern countries. Except for ME economies, others are choosy with their funds, as they were aggressive buyers at lower levels.
China will never join 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 a prolonged strike embarrassed a government in a country where bullion traders and jewellers were not only losing business, they were paying 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.
With prospects of free money in the shape of a quantitative easing diminishing and new duty on gold imposed by the Indian government remains 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 a break of $1668. However, key on the downside will be a break of $1648 that will encourage for a slide towards $1638. Only a break would risk for a crucial of test support around $1628-30. The high probabilities of yellow metal further fall towards $1600-10 in 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 an 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 a sharp slide towards 1.2820. Range for the week: 1.2820-1.3250.
GBP @ 1.5844: Cable will have a mildly bullish tone against Euro and may not dip at same pace against US dollar. On the up, a break of 1.5898 will encourage for a test of 1.5940, where it will find strong resistance, though not a preferred scenario. However, on the downside, a break of 1.5775 risks for a test of 1.5710. But Cable is a 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 volatile as seen during the last 4 to 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. A break risk for 0.9350, or else 0.9090. Range for the week: 0.9075-0.9350.
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