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Forex − Gold Hits New Highs And Aims For $1100

Wed, Nov 4 2009, 11:02 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

Forex News and Events:

The news of India’s massive purchase of gold in the past 2 weeks has helped propel the precious metal to new all-time highs ($1093 at the time of writing) as speculation mounts that central banks are keen to increase holdings of gold to diversify their reserves. The enormous 200 metric ton acquisition from the IMF is the largest single purchase in at least 30 years, and comes after China revealed in April that they too had increased their total holdings to 1,054 tons (from 454 tons in 2003). Speculators are now querying whether such purchases signify a change in attitudes about gold as a reserve holding, and as the USD continues to weaken, whether more central bank interest is likely to follow. Although a pure fundamental move – and hence the less pronounced moves in correlated EURUSD and equity markets – gold markets will be just as focussed on tonight’s critical FOMC meeting as other risk-asset classes. Commentary is divided on whether the recent improvements in US data may prompt a shift in the tone of the expected statement, or whether the doves remain in power and will reaffirm the low-for-long interest rate policy that has underpinned the USD-funded carry trade in the past 9 months. There are good arguments for both scenarios, but our core view is that the Fed is unlikely to burst the bubble just yet as the sickly state of the labour market and fragile nature of market sentiment mean the recuperation of consumer confidence is for now, reliant on the continued recovery of asset prices. Any deviation from a verbatim reiteration of last month’s low for long commitment could trigger a nasty unwind in USD-funded assets and long-term damage to consumer confidence which we feel is too big a risk for policy-makers to take right now. Whether EURUSD will shoot to 1.4900 by this evening or plummet to1.4500, what is certain is that the outcome of tonight’s meeting will be pivotal for the drivers of both FX and equity markets from here, and we expect an aggressive move whichever way the cards fall. The rest of today’s events are likely to be mere side attractions to the main FOMC focus, but we will also look forward to ADP Employment figures and ISM Non-Manufacturing Composite. We still see better-than-expected data fuelling EURUSD and risk-assets higher, but the prospect of the game-changing Fed statement later is sure to constrain any over exuberant rallies. 

Today's Key Issues (time in GMT):

10:00 EUR PPI, % m/m (y/y) Sep exp: -0.4 (-7.7) prev: 0.4 (-7.5)
13:15 USD ADP employment, chg 000s Oct exp: -198 prev: -254
15:00 USD ISM non-manufacturing, index Oct exp: 51.5 prev: 50.9

The Risk Today:

EurUsd Despite breaking the 1.4687 support intraday, the short-term shorts are obviously finding this region as sensible place to cover before the bigger picture unfolds. The said, 1.4815 is now looking like a good short entry as the pair slips into this downtrend channel with greater conviction by the day.

GbpUsd After making a brief attempt to visit the major long term downtrend at 1.6620 last week the pair has continued carving out a massive compound head & shoulders (or as it has been referred to by some, the cable ‘hunchback of Notredame’). Admittedly it is not the prettiest of H&S formations, but the criteria are fulfilled and all the bears need to see now is a break of 1.6272 to get themselves excited about a move to the 8 month uptrend channel at 1.6110, followed by 1.5801 should 1.6040 fail. Expect any visits to 1.66 region to be met with more shorting.

UsdJpy Looking at USD JPY on a daily picture today it is clear to see the medium term down trend is still very strong. The pair could not even reach the upper downtrend line last week before selling off again but is now sitting in no‐man’s land from a trade entry point of view. However, should the pair manage to reach 91.80 / 92.00 then we can expect to see some short interest. Intraday shorts may also consider 90.90.

UsdChf The pair continues to mark its range between 1.0150 support and 1.0270 resistance. Bearish trend remains as long as we continue to close below 1.0270, but decent long interest should come in at 1.0123 with lots of support at 1.0037 below. Lack of drivers should push the pair down to 1.0150 support.

Resistance and Support:

Published on  Wed, Nov 4 2009, 11:14 GMT