ARTICLE: Though global stock market remained stable, yet overall it was another bad end to the week with hardly any positive news for the global financial market. US Dollar was the beneficiary enjoying safe haven status that continued to make gains on back of eurozone weakness hitting 22-month high versus euro, as euro hit the lows to briefly test and break 1.25 to close at 1.2515.
Gold traded in wide range between $1,599-$1,532.30, as investors were trying to determine the outcome of economic uncertainty to close at $1,572. European bond and CDS came under pressure, as European policy makers remained divided over issues. The European leaders gathering last week could not bring any respite, as neither progress was made over debt crisis nor any commitment was made to prevent Greece from quitting the European bloc after the comments made by the Greece Prime Minister that risk of Greece leaving EURO is real. Although EU ministers showed their support wanting Greece to stay in the bloc, even then they are unwilling to compromise on austerity measures to give boost to the growth. IMF Chief Lagarde's statement that eurozone is at the epicenter of the crisis further dented the sentiment.
Uncertainty dominated as European lenders disagreed on floating ECB bond. Hollande and other leaders want ECB to take action, but Germany is in no mood to consider eurobond option. Greece exit looks unavoidable and break-up will definitely be disastrous that will have contagion effect, which means Spain, Italy and France can immediately be pulled into hot water and, therefore, another or 3rd LTRO is most likely to be announced. Europe is surely heading for turbulent months.
Overall, Europe is under severe pressure, last week's European economic data was worrying, as its Purchasing Managers Index data (PMI) for the month of May fell to 45, lowest since June 2009 indicating that recession is deeper than expectation. In another development, Spain's troubled banks are desperately seeking liquidity injection and despite a few injections to its banks S&P downgraded Spain's bank that weighed on euro.
European currency that fell over 15 percent since last 13 months is likely to stay soft until Greece election due on June 17 and bad economic number could further push euro down. So preferred strategy for the coming week is to pick the top of the range and sell the currency, because normally any currency that moves excessively on one side is due for correction, but, despite long weekend due to Memorial Day holiday in USA on Monday (Today), euro close near 22-month low, which is not a healthy sign for euro. However, a nod from Germany's Angela Merkel to allow ECB to launch eurobond will give boost to EURO that can surge by 300 pips.
On Monday, Asian and European markets will remain active, but US market will be closed due to Memorial Day. German Consumer Price Index (CPI) expected at 2.1 percent will be keenly watched. On Tuesday, there are a few economic data announcement due to be released in UK, Germany and USA but it is not likely to make big impact on the market. On Wednesday, European and US data may give some idea about the economic activity in the two continents but are not the market mover. On Thursday, UK's Nation-wide Housing Price data, which is considered a sensitive data in terms of value of the house price that gives hint of housing movement in UK, a higher number is considered positive. At the same time German Statistic Office will release Unemployment change data that will provide some idea about economic growth Deutschland and Friday, will be busy day, Germany and eurozone will be announcing Purchasing Managers Index that will provide business condition in the manufacturing sector linked to GDP. Already around 46, which is considered low, as a result above 50 percent is required for a healthy economy. However, all eyes will be on USA for the release of 111-economic data of which, Non Farm Payroll and Unemployment data will be the key that will prove more clues about the performance of US economy and guidance about next US monetary policy.
GOLD @ $1572.30 = It was once again a successful week, as gold gain was short lived and could not surge beyond $1,599 before sharply plunging to hit my target of $1,558. The fall was big pushing down to test the support level of $1,532.30 before bouncing back on investors' demand to close at $1,572.30. This week, initially we may witness some more gold buying that could push the yellow metal higher before making another dip, as volatility would continue. Gold will find resistance around $1,585 and break here would challenge $1,595-98. I will suggest caution if this level is seen, as risk for sharp fall will increase. I am expecting $1,562 to surrender that would encourage for $1,540 on break of $1,550. However, only break would encourage for a test of $1,608 levels.
EURO @ 1.2515 = We have witnessed another successful as euro after hitting the top side of my given level 1.2820 fell nicely to test my target 1.2580, as the fall extended to test 22-month low of 1.2495. As long as euro fails to push beyond 1.2680 the European currency will remain under pressure and preferred strategy would be to pick the top to sell euro. However, on the downside break of 1.2470 will encourage for a test of 1.2410, but break of this level could risk for sharp fall to test and break 1.2325 for 1.2220. Ranges for the week 1.2680-1.2280
GBP @ 1.5657 = Cable will continue to struggle as long as it stays below 1.5780. Risk is that a break of 1.5570 could see fall extending towards 1.5420 or 1.5330: Ranges for the week 1.5780-1.5350. YEN @ 79.65 = Once again the call was correct as the Japanese currency met with resistance below 79 Yen to bounce back to briefly hit the level above 80. However, I am expecting Yen to remain in a narrow range as the currency may not have enough muscles to fall below 78.40. A move beyond 80.20 could see a test of 80.80. But the bias for the currency is likely to remain strong and could test 7840. Range for the week 78.20- 81.20.
CHF @ 0.9590 = Swiss Franc can be volatile this week due to rumour of SNB action to discourage SFR buying. SFR 1.20 Peg versus euro is key could be tested. I will not be surprised to see a test of 1.1960-70 against euro. So the 0.9480 is the level to watch if breaks could see 0.9440. However, I am expecting 0.9440 to hold and looking for break of 0.9680 for a test 0.9750. Range for the week 9420-0.9780.