It was an eventful week that ended on a positive note helped by favourable US economic data. The US housing and manufacturing figures were encouraging and later in the week a US rise in payrolls gave a further boost to the unemployment numbers that came down to 8.5 pct.
Last week, eurozone's debt issue once again popped up, which was never a settled issue and remains a big worrisome factor as there are no signs of genuine comfort. Banks that were offered cheap liquidity by ECB were hesitant to lend the excess money to corporate sector or banks and financial institutions, which shows a lack of confidence in the financial sector.
The European trio MerKozy & Monti will be meeting on January 20 before the European summit due on January 30 to discuss the progress and to find out new ways to address the regional problem. It is obvious that market lacks confidence fearing that the journey is too long while solutions too little. Greece situation could dominate the agenda. My advice is that the European policymakers should be quick to decide and dump Greece. This will certainly be good news for the market as credibility factor will get much needed boost and eurozone leaders will get some breathing space.
In the US, there are some positive developments with consecutive strong US economic growth numbers. The US did manage to avoid recession and therefore, FED does not require quantitative easing (QE) for now, which is the strongest tool up its sleeves. QE will be delayed until there is an urgency because the US policy makers will be keenly watching developments in Europe, as European meltdown poses further risk to the US economy. So the US will prefer to use its tools at an appropriate time.
VIEW on GOLD: Got boost from Iranian development, which could see some more gains if the Iran situation further worsens. This Iranian affair could drag on for some more time and we may witness price volatility in the market as EU has asked for 2-months period to prepare for the eventuality.
But overall, EU liquidity assistance is no good news for gold bulls because that money will not flow into the hands of yellow metal buyers. Neither are there any signs of US quantitative easing in near term as the US economy has picked up; so Fed will not waste its ammunition until there is a genuine need to use it. This also reduces the demand for asset purchase. So the bottom-line for gold trades is that they should be prepared for big way either side moves.
GOLD @ $1616.60: Gold has a strong support around $1590. It should hold for a test of $1640. Only a break here would encourage for a test of $1660 or $1675. On the downside, a break of $1572 would possibly warrant a test of $1545. Watch out as volatility will continue.
EURO @ 1.2718: Euro's fall is not unavoidable, but this week it has strong support around 1.2580, which may not be easy to crack. An upside break of 1.2880 would encourage for a test of 1.2990 a very strong resistance zones and only break would see a push towards 1.3080. On the downside next level to watch would be 1.2410.
GBP @ 1.5424: Unless 1.5330 surrenders Cable has good chance to make recovery. A break of 1.5550 would brighten chances to test 1.5660, with next resistance at 1.5720. Or else 1.5250. JPY @ 76.95: Yen may not have enough legs to test 76.21 and may rebound from 67.40 zones. Only a break of 77.80 would encourage for a test of 78.28.
CHF @ 0.9550: The demand for Swiss Franc will remain strong, and as long as continues to challenge Euro in crosses CHF may not ease its stance. It will have strong buying interest around 0.9620 zones despite weakness in Euro around re-test 0.9380 on break of 0.9450, or else 0.9740 before down again.