The rush for Gold continues ahead of Bernanke’s speech
Investors focus on Bernanke speech
This week started off on a cautious note as investors were looking ahead to a speech Fed chairman Bernanke was due to hold at the Jackson hole symposium, this Friday. Anticipation was building and investors were wary of what positions to build on ahead of the event.
Over the weekend the German Chancellor, Angela Merkel, reiterated Germany’s opposition for Eurobonds, at least for now. Ms Merkel went on to say that Eurobonds were not the solution for the current crisis. Finance Misnister Schaeuble also indicated that until further integration is attained, differing yields for the different countries within the Euro Zone will serve as an incentive to run a solid economy.
Japan readies itself for intervention
Also during the weekend Japan warned it was ready to take action if JPY price changes remained one-sided. Last Friday the USD/JPY reached lows of 75.95. FX markets were expecting intervention if the currency pair slipped back below 76.00.
Gold breaks $1900 level, silver also gathering support
The Gold rush continued throughout the former part of this week, the safe haven metal brushed ahead of the $1900 level last Tuesday, marking seven days of consecutive gains. Despite Gold stole most of the headlines even silver registered remarkable gains. From month’s start Silver is up 10.86% while Gold gained 17.64%.
The rush for the metals comes on the back of the uncertainty surrounding the global economic recovery but also as the “safer” options become restricted. FX investors were wary of pushing the USD too far given the event risk later this week. The Swiss franc and the Japanese Yen remained overshadowed by the respective central banks’ general readiness to counter their currency’s strength.
British Pound getting an enhanced role
GBP also gained an enhanced role in the FX world. As the viable alternatives continue to shrink the UK’s fiscal situation appears to stand out (despite its own shortfalls) when compared to the uneven Euro Zone equivalent.
Caution in the light of uncertainty – QE3 back on the books?
Driving risk sentiment and general overall concerns is the ongoing Euro Zone debt issues, and the sluggish and in some cases disappointing numbers coming out of the US economy. FX investors are building expectations over Bernanke’s speech at the Jackson Hole Symposium later this week- some are even expecting the outcome to be a game changer. Talk of a third round of Quantitative Easing, to supplement economic growth, is resurfacing again. Although one should also add that there seems to be a general skepticism over the efficacy and possible effects (given the threat of inflationary pressures) a third round of QE might have.
It appears that the Euro Zone debt situation cannot find any respite. Earlier this week the ECB announced bond purchases that totaled EUR14.18 billion throughout last week, and while the figure is lower than the previous week’s EUR 22 billion – the amount continues to point towards the severity of the financial troubles.
Euro Zone PMI showing signs of easing, but overall better than forecast
Last Tuesday Euro Zone growth gained attention as France, Germany and the Euro Zone as a whole released their flash PMI numbers. A run through the numbers shows that the French PMI Manufacturing fell short of previous figures while the German equivalent remained in line with the previous. In the services sector French PMI was higher than the previous but the German equivalent dragged lower. The broader Euro Zone figures were on the whole relatively positive as all actual figures came out higher than expected numbers.
Up to the time of writing, in the former part of the week the Euro managed a slim 0.20% gain, GBP was up 0.08%, the USD lost -0.56%, CHF was down -0.80%, and the Yen was down 0.61%.
For the EUR/USD currency pair, throughout the current week we see resistance in the region of 1.4524 – 1.4653 and to the downside support at 1.4125 – 1.4261. We correctly anticipated the correction up to 1.4500 seen last Tuesday.
For the EUR/GBP currency pair we see resistance in the 0.8827-0.8916 region, and support at 0.8564-0.8650 region. For the current week we see a possible rise towards the formerly stated resistance zone, after which a downside move is expected.
The Swiss franc’s weakening stalled when seen against the Euro and the USD. The EUR/CHF traded in the range of 1.1267-1.1423 earlier this week significantly off 9th August lows of 1.0072. The USD/CHF traded in the range of 0.7839-0.7911 again significantly off 9th August lows at 0.7066.
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