Gold drops be­low $1200

Financial Mirror (Cyprus) - - FRONT PAGE -

De­spite the Euro­pean Cen­tral Bank (ECB) leav­ing mon­e­tary pol­icy un­changed last month, the Eu­rodol­lar de­clined by a fur­ther 200 pips last week with a con­tin­u­a­tion of poor eco­nomic data in­spir­ing down­side move­ment. Not only did this in­clude EU CPI (in­fla­tion) fall­ing to a near 5-year low in Septem­ber, but Ger­man eco­nomic data also con­tin­ued its run of poor form. An un­ex­pected man­u­fac­tur­ing con­trac­tion has raised an emer­gence of fears that the Ger­man econ­omy might con­tract again in Q3.

Eco­nomic data from the Euro­pean Union is lower in quan­tity this week, so we can’t rule out a con­sol­i­da­tion of losses or re­cov­ery pe­riod after a few weeks of heavy sell­ing. Whether the pair can re­cover sub­stan­tial losses would be de­pen­dent on the mar­ket re­ac­tion to Wed­nes­day’s FOMC Min­utes. If there is an un­ex­pected hint re­gard­ing a po­ten­tial time­frame for a US rate rise, Green­back strength would al­low the Eu­rodol­lar to con­tinue mov­ing lower in val­u­a­tion.

Look­ing at the tech­ni­cals, the EURUSD has found it­self back inside its bear­ish chan­nel after a false break­out lower. This would pro­vide room for a con­sol­i­da­tion pe­riod, be­fore the next leg lower. Re­sis­tance found at 1.2675 and 1.27 could pre­vent the EURUSD from trad­ing above 1.27, while support can be found at 1.2572 and 1.2509.

The Cable was the un­ex­pected loser of the week, de­clin­ing by over 200 pips and drop­ping be­low 1.60 for the first time since Novem­ber 2013. Eco­nomic news started brightly, with UK GDP be­ing re­vised up­wards and lead­ing to fur­ther pres­sure be­ing put on the Bank of Eng­land (BoE) for a rate hike.

How­ever, the cable took an un­ex­pected bear­ish turn when the UK Man­u­fac­tur­ing PMI missed ex­pec­ta­tions due to EU eco­nomic prob­lems lim­it­ing de­mand for UK prod­ucts. This pro­vided in­vestors with their first real in­di­ca­tions that EU eco­nomic woes have a detri­men­tal im­pact on UK eco­nomic growth and weak­ened in­vestor at­trac­tion to­wards the GBP sub­stan­tially. On Fri­day, Chan­cel­lor George Os­borne made head­lines for ex­press­ing that EU eco­nomic prob­lems pose the largest threat to the UK econ­omy.

This week, the BoE is largely ex­pected to leave mon­e­tary pol­icy com­pletely un­changed on Thurs­day. Per­haps the largest risk to the GBPUSD val­u­a­tion will come from Tues­day’s Man­u­fac­tur­ing and In­dus­trial Pro­duc­tion data. If in­vestors re­ceive any more sig­nals that EU eco­nomic is­sues are im­pact­ing UK sec­tor growth, ex­pect the bears to be alerted.

From a tech­ni­cal stand­point, this pair looks bear­ish and has found it­self grad­u­ally slid­ing through the bear­ish chan­nel formed in Au­gust. Re­sis­tance can be found at 1.6051 and 1.6097, while support is lo­cated at the cur­rent 2014 low 1.5951. A down­side break be­low the Novem­ber 4 low of 1.5906 would open the doors for the GBPUSD to trade be­low 1.59 for the first time in over a year. much stronger than fore­cast and led to height­ened sus­pi­cions that the Fed­eral Re­serve will look to raise in­ter­est rates sooner than ex­pected. As such, Gold con­cluded trad­ing on Fri­day be­low $1200 for the first time since De­cem­ber 19, 2013.

De­spite fears re­sid­ing over an eco­nomic slow­down in China, po­lit­i­cal un­rest in Hong Kong and an in­ter­na­tional coali­tion against the Is­lamic State, Gold seems to only be trad­ing in ac­cor­dance with US eco­nomic news. There­fore, in­vestors in­ter­ested in Gold should mon­i­tor Wed­nes­day’s FOMC Min­utes closely. Any un­ex­pected hints that the Fed­eral Re­serve is in­ter­nally talk­ing about rais­ing rates would pro­vide more power to the bears.

Other than the FOMC Min­utes, eco­nomic re­leases from the United States are low this week but the com­mod­ity still looks on track to reach the 2013 low ($1180.32) by the time the Fed­eral Re­serve con­cludes Quan­ti­ta­tive Eas­ing (QE) at the end of Oc­to­ber.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.