Despite settling of some of the major European issues in the past two weeks, make it still looking for direction. There were quite a few important announcements that took place. Apart from Australian rate cut by 25 basis point, ECB and BOE opted for hold. There is no final word on US fiscal cliff yet. But this week market focus will shift towards FOMC meeting on December 10 and 11, which is the major event of the week.
Euro that was gaining upside momentum on belief that the regions worries are being well managed and getting the much needed support got the blow when Draghi in his last week's press meeting that was followed soon after the monetary policy announcement, presented Dovish outlook for the European economy. He lowered growth and inflation, further hinting that European policy makers discussed wide range of rate options pointing towards ECB discussion on possibility of rate cut.
Euro-zones economy is fast deteriorating, unemployment rate continues to climb at its fastest pace, industrial and manufacturing sector growth (PMI) is well below benchmark level of 50. Earlier German Central Bank (Bundesbank) gave a big blow to the market by announcing slashing of its 2013 growth projection to 0.5 pct from its previous estimate of 1.6 pct that will be caused due to fall in its exports. In 2011, German economy grew by 3.1 pct. It simultaneously expects active domestic market that should help to avoid recession.
However, this week though market will keep a close watch on economic data's and US fiscal issue, but US FED official meeting on Tuesday and Wednesday will play the dominating role in global financial market. One major topic of discussion could be Operation Twist (OT) that expires at the end of the year. It is expected that FED would agree to continue with its long term bond purchase programme. This may counter Euro's weakness as liquidity injection will weaken US Dollar and gold could be real beneficiary. But any change of FED's plan will catch market on the wrong foot that could see change in trend to the opposite direction.
As we are approaching December 16 Japanese election, Yen is making headlines by testing new highs after its continued 9-week weakness. LDP party chief's statement calling for easier monetary policy and flooding the market with unlimited liquidity to attain 3 pct inflation is now questioning the independence of Japan's Central Bank (BOJ), but this is something not new as government intervention is commonly practised all over the world though behind the scene. With LDP taking the lead, risk is high that until election Japanese currency would continue to find sellers unless the lead narrows. COT (commitment of traders) data from Commodity Trading Futures Commission revelled net short Yen position is 90.000, which is the largest this year that tells why Yen is sold regularly since November 14 this year.
GOLD @ $ 1703.80 = Gold that is unable to make gains since last 2-weeks popped-up on late Friday rally after briefly hitting $ 1685 on good US job data. This week I am expecting buying interest on dips as long a support $ 1680-85 holds. However, gold needs to push beyond $ 1720-22 zones to test $ 1735. Break of support level could provide ideal opportunity to buy gold on dip around $ 1670, which is not a favourable move this week.
EURO @ 1.2926 = Strong barrier is around 1.2820-40 zones and break is required for a test of 1.2750. See risk that by mid-week break of 1.2995 could push Euro towards 1.3080. Range for the week 1.2720-1.3120.
GBP @ 1.6032 = Bias is on the upside. Hence, buying on dip is preferred. Cable should find support around 1.5910 and break of 1.6120 will open gates for 1.6170-90 zones. Or else 1.5850. Range for the week 1.5850 1.62.
JPY @ 82.48 = Selling interest in Japanese currency to dominate and buyer of US Dollar will put pressure on the currency. 82.03 should hold or else next support level is at 81.45. Break of 82.95 will pave way for 83.15, but sharp correction will often be seen as the currency has notorious behaviour Range for the week 81.45c - 83.15
AUD @ 1.0483 = As long as 1.0320-40 holds risk is for higher move. Aussie could bounce back from 1.0370 zones and break of 1.0525 would favour a move towards 1.0580-00. Range for the week 1.0350 1.0620