European financial market shock is not over and could continue to haunt market players, investors sentiment could shift towards US and European economic data with a view to finding out some new clues. News from Greece and statement from the Fed officials will heavily weigh on currencies and gold.
Three weeks have passed and Greece is getting closer to March 20 deadline to pay back a Euro 14 billion debt. Private investors have agreed to a 70 pct haircut on its Greek bond holdings, but resistance from Greek negotiators on demand for reduction of Euro 325 million on pensions issue by this week has halted the progress and parliament's approval is the next big thing. Keeping in view the past trend, there is no assurance that Greece will fulfil the commitment to meet the fiscal deficit target as it could succumb to pressure from demands by protestors and politicians.
In the past when US dollar was in trouble the global shift in currency was towards German mark and Swiss franc. The emergence of Euro is now proving a boon for the German economy as weak European economies are suffering due to higher value of the European currency, which is not sustainable in the present circumstances as weaker European economies are unable to find sufficient space to provide cheaper goods to increase their exports due to higher value of euro and declining domestic economic conditions due to a huge debt and a high deficit, tilting the balance in favour of Germany.
For PIIGS economies faced with economic hardship, is extremely difficult to exit, as financial implications of departure are too high, though some of them will have to ultimately leave currency union. So Europe still have long way to go as it will continue to struggle for a longer period of time. In a recent move, Greece's half a dozen ministers have so far resigned in protest against austerity measures. Last week, S&P announced downgrade of 34 Italian banks and yet there are plenty of problems and unresolved issues in the pipeline.
Fx & Gold outlook February 13-17
EURO @ 1.3192 = Euro's fate will certainly depend on news from Greece that could bring some smile on the faces of Euro bulls, as demand for cuts in pension is a political issue and will most likely be resolved. But statement from the Fed officials and minutes of the last Fed meeting will be watched carefully. Euro has once again closed around important chart level of 1.3180 that suggest it has room for further gains this week and any positive news from Greece will give boost to the currency by 120-150 pips, unless pension demand is flatly refused that could dealt a severe blow to the currency. This week, major support area for Euro lies at 1.3040, which is likely to hold. I am looking for a break of 1.3320 that would encourage for a test of a 1.3480 zone. A break here could possibly push Euro further up towards 1.3540. However, I will exercise some caution while buying Euro on a break above 1.3350 that poses a risk to Eurozone currency and hence, prefer selling Euro by picking top of the range or else attach for 1.2920.
GBP @ 1.5754 = Cable should follow the Euro and extend its gains on a break of 1.5870 on a break of 1.5790. But convincing break of this level is required for a feeble push towards 1.5945. On the down side, I will be keenly watching 1.5660, if a break of 1.5580 is a less likely scenario this week.
JPY @ 77.59 = Recently, we have witnessed some moves in Yen, which may continue to weaken on a break of 77.95 that sees a push towards 78.50. Keep a close watch on 77.05 - a break suggests a retest of 76.55.
CHF @ 0.9162 = Swiss franc will provide resistance around 0.9290 zone as charts indicate a test of 0.9020, a break of this level could see a test of 0.8920. However, all eyes should be on crosses versus Euro getting closer to 1.20 increases risks of intervention and parity change that could sharply result into SFR weakness. Hence, a break of 0.9440 could risk a higher move.
GOLD @ $ 1721.70 = Last week, gold made quite a few attempts to penetrate beyond $1750, but failed to make gains. This week, gold investors will be looking for clues from Europe and the Fed for QE. I suspect another downward attempt would be made to test $ 1700 and if breaks could see a fall towards $ 1675-80 zones. However, I do not rule out another upside test on a break of $ 1740 for $ 1755.
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