Market Outlook

Market Outlook


Gold opened last week with a gap down as North Korea held back during the weekend and decided not to do anything provocative. USDJPY too benefitted and rallied.

British Pound was a big mover last week. Tuesday set the tone with a stronger inflation reading from UK that increased the odds of a BoE rate hike. The Jobs data on Wednesday did disappoint but BoE held on to its guns on Thursday and strongly indicated the desire to raise rates soon. The vote was 2-7 to hold on to rates for the time being, but soon became 3-7 the very next day when a dove Mr. Vliegh admitted that he too preferred raising rates. GBPUSD that had fallen to 1.3200 after a weak jobs data on Wednesday rallied to 1.3600 and closed the week at 1.3594.

USDJPY was the beneficiary of a reduced risk scenario. USDJPY rally continued till Thursday when the US inflation data came out stronger. The surge was halted as news flashed that North Korea was preparing for another missile test. Response from US was muted and the rally soon resumed with North Korea closed the week at 110.84.

Crude Oil was a big mover last week as both IEA and OPEC revised upwards the global demand for oil and closed the week at 49.89 up 4.85%.

This week has two central bank meets and a German election to cope with. The US Fed meets on Wednesday night and Bank of Japan on Thursday. German elections are due on Sunday with Merkel all set to assume a fourth term in office.

Gold closed last week below its crucial support at 1321, but a whole lot depends on what the North Korea does or doesn’t during the weekend. The elevated level of longs (very close to year high) and a massive 20:1 long/short ratio (5 year high) has kept the Gold bulls worried, any failure to rally from here on would lead to a rapid long liquidation that even 1300 might find difficult to defend. The strong support for Gold lies at 1275 and resistance at 1342.

It’s widely expected that Fed this week would not raise rates but could commit itself to balance sheet reduction by announcing a date for it. A similar decision would be dollar bullish and bring Gold under more pressure. Events from the Korean peninsula and Trump’s success in his attempt to push through his reforms too would be closely watched as always.

Monday will have the Europe inflation data to watch out for. Nervousness ahead of Fed meeting on Wednesday should see Euro starting weaker. But with Merkel’s win almost guaranteed EURUSD should remain well supported towards the end of the week as she would be seen working closely with France’s Macron to strengthen EU.

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