The US Dollar surged and gold after sliding USD 100 was still searching the bottom after Fed Chairman Bernanke''s last Wednesday testimony to the congress, which turned out to be the bigger event of week, as most of the financial market players were concentrating on LTRO announcement that was offered 20 pct to 25 pct higher than the market estimates.
ECB''s announcement Euro 529.5 billion LTRO billion offer helped in stabilising European equity market, Spanish and Italian bond yield remained under 5 pct and Europe''s banking sector shares made good recovery.
Bigger size LTRO offering may only provide short-term respite, as it poses some serious question about the health of European economy indicating that it may be facing more severe problem than earlier thought. Despite Greece bailout approval there is surely lack of market confidence, as debt problem remains a matter of huge concern. Rating agencies have once again downgraded Greece.
Bernanke''s presentation to the US congress reflected both side of the economy, positive as well as the negative. He sounded confident with the US growth prospect and improved job conditions but showed his concern due to rising global oil prices that may add to inflation numbers if oil prices continue its climb.
More importantly Fed Chairman hinted that Federal Reserve may not opt for much waited 3rd quantitative easing (QE) in May 2012, which means no further liquidity injection. This was turning point that hit the stock market. GOLD tumbled after hitting this year''s all time of $1790. 50 and EURO too that had hit the high of the year 1.3484 last week, fell like a nine pin.
Euro that started the week in a stronger tone was gaining upside momentum on hopes of mending of European economy due to joint strategy prepared by the European policy makers received further boost from the global financial leaders in Mexico announcing support.
But, soon after LTRO announcement market became directionless and Euro got clobbered as all hopes of 3rd US.QE program was dented by Bernanke''s hinting that FED may not inject more liquidity, as the US economic growth is satisfactory that also gave boost the US Dollar.
European economic numbers added to the woes. German retail sales were disappointing as its monthly number fell by (1.6) against expectation of 0.3 pct increase indicating low spending. News coming from Spain is also not very encouraging for the European economy, as it has once again beached its commitment by announcing upward revision of its fiscal deficit target to 5.8 pct against previous target of 4.4 pct.
Recent European economic indicators suggest downward bias for the region''s currency to continue at the start the week with all eyes on economic data for more clues. More important is coming March 08, ECB meeting and that could add pressure for a rate cut.
Meanwhile, another bad news for Euro is that latest opinion polls from France suggest Sarkozy''s is far behind his opponent, which could mean that he may not do well in April 22 elections.
However, market will be looking for excuse to take profit, as weak data for USA may give enough reason to sell US Dollar. All eyes will be on Friday''s nonfarm payroll data, decline in claims may further give boost to unemployment rate which is currently 8.3 pct.
GOLD: Higher LTRO announcement did not work well and since gold could not surpass a major resistance level of $1792, Bernanke''s assessment of US economic gain reduced the chances of quantitative easing(QE3) that spoiled the ongoing party. Squaring of positions taken earlier in anticipation of QE3 also has impact on gold price.
Furthermore, I would like to add that every penny is needed/counted to make quantitative easing successful, the point that I am trying highlight is that since January average price of oil is up by roughly USD 13, which means that based on global demand of 85 million barrels per days @ $13 for 60 days, USD 66 billion genuine cash money went into oil exporting countries kitty and since Europe and USA consume 45 pct of the global oil large part of the money is transferred to other continent. Therefore, market is certainly deprived of half cash money, which means more demand for US Dollar and this money is certainly not invested in gold. So keep a watch on oil prices to keep track of liquidity. So technically unless more money is invested in Gold, the metal will remain under selling pressure.
Forex & gold weekly outlook
GOLD $1709.65 = I am expecting selling pressure to continue. Major resistance levels that I will prefer selling gold are $1724, $1735 and $1752 respectively and requires a break $1765 to end the bearish spell.
However, watch for a break of $1692 that may push gold towards $1675-80 zones. But $1645-50 is the important support level to watch.
EURO @ 1.3198 = Pressure is likely to mount on Euro and 1.3280 is a strong resistance level. Break of 1.3120 will exert pressure on the currency which could test 1.3070, if decline continues 1.3010 is next level to watch. However, on the upside 1.3350 is the critical level.
GBP @ 1.5828 = Pound Sterling will have a strong tone despite stronger US Dollar sentiment. Buying interest will be seen on dips, 1.5770 is an important support level only break here may push Cable down to 1.5720. However, push beyond 1.5850 will encourage Pound to test 1.5910.
YEN @ 81.78 = The move is quite in line of my last week forecast. I see some more losses for the Japanese currency and 82.60 is the next support level for YEN. However a break would risk for 83.65. I would like to caution that we are about to enter a crucial zone and hence, we could soon witness sharp USD selloff as demand for Yen will see JPY surging. A break of 81.80 could see Yen gaining 80.30, but break 79.70 may end this Dollar bull rally against Yen.
CHF @ 0.9138 = Swiss Franc has major resistance at 0.9070, which should hold and break of 0.9180 will see a 0.9250 with next crucial level to watch is 0.9325.