Live Trading Floor – November 2013

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The end of November trademarks the largest decline in five months as Taper expectations and strength in the greenback kept prices under pressure. Price action was lacklustre.

This week amid the shortened holiday schedule and a quiet economic docket with the pace set to pick up as we open up December trade.

Gold nudged higher this week (25th-29th November) with the precious metal advancing 0.66% to trade at $1251 ahead of the New York closes on Friday.

 

Aside from the flurry of central bank rate decisions next week from the likes of the RBA, ECB, BoE and the BOC, traders will be focused on US economic data with the preliminary read on third quarter GDP & the November non-farm payrolls report on tap. Consensus estimates are calling for an upward revision from last month’s blowout GDP print of 2.8% q/q to 3.1% q/q.

 

The November Employment report is also expected to show continued strength in the labour markets with estimates calling for a read of 183K as unemployment ticks down to 7.2% from 7.3%. The risk to gold remains to the downside on stronger US data as the case for continued fed accommodation becomes more difficult to warrant against the improving economic outlook. However, with expectations for US Metrics to remain rather frothy heading into the close of the year, weaker prints could set-back or even diminish expectations for a shift in policy at the December FOMC meeting, thereby limiting the downside for gold prices in the near-term.

 

As we continue to look to broader central bank policy for cues, it’s also important to note that China, which is expected to overtake India as the biggest consumer of gold this year, saw a pickup in demand this week as the price of gold hit fresh 4 ½ month lows at $1239. “Chinese buying” has largely been a supportive headline for the metal with trading volumes in world’s second largest economy hitting 7- week highs. However with the current central bank outlook and strength in greenback, rallies in bullion remain at risk as we head into the open of December trade with price action over the next few sessions likely to set the tone for the close of the year.

 

From a technical standpoint, gold prices rebounded off key support this week at a confluence of

Fibonacci levels at 1233/34 with the extreme lows making a clean reversal off of an Andrew’s pitchfork bisector dating back to the August high.

Divergence has been identified on the daily momentum signature and the risk for a correction into the open of December trade has us looking higher in the near-term for possible short entries.

Topside resistance targets are eyed at $1256 and $1268/73 with a break above this threshold risking a more meaningful correction higher. A break/close below $1233 puts the larger trend back into focus with support targets noted at $1209 and $1179/81.

With the ‘Greenback’ trading at resistance below 10,650, we will watch price action in the greenback closely with the December opening range likely to offer further clarity on a directional bias heading into the close of 2013.

 

Also USD/JPY has broken through a very long term resistant level, is supported with very strong momentum that reflects the shift of fundamentals in both economy, and interest rate structure.

Also continuation of this trend will renew the institutional carry trades in favour of USD which will push the USD through the next technical resistant level of 103.74, and in the way to fill the price gap created on the Sep 29th 2008 from 105.30 to 104.55, as the statistic of price action in major currency pairs prove, price gaps always get filled, some takes longer than others. Our target for the 2014 stands at 110.70 for the pair.

 

Also the most important factor to impact the USD will be the timing-rate of taper of current monitory policy by the new Fed Chair Woman Janet Yellen, any hint of moving towards tapering will move the USD higher very rapidly.

 

To summarize the month of November for USD is not as simple as weakness or strength, as we have seen strength against JPY, AUD, CAD, but weakness against EUR, and this is the characteristic of titanic shifts in major financial instruments (US Treasury bonds) that manifest its impact in USD, without any doubt the entire European economy is heading toward rapid recovery with absent of inflation, we must pay lots of attention to the upcoming US data in the first week of Dec as it will set the stage for direction of USD and the year. The most important data that the Federal Reserve will be watching closely would be annualized GDP and NFP report.

 

Author, Vijay Sharma

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