Forex Magnum


Bernanke and Gold the Day After

Autore: FX Empire Analyst - Barry Norman

Yesterday’s closely watched Fed’s policy meeting finally yielded results to extend the bond buying program known as “Operation Twist” through the end of the year, raising the money amount by USD 267 billion. However, this disappointed investors who had earlier anticipated QE-3, believing the Fed’s move was not strong enough to boost the economy and resulted in fall of riskier assets

This morning commodities are trading down. Asian equities have also declined in the early morning due to lack of easing from Fed coupled with weak HSBC flash PMI release from China. The private PMI has declined to 48.1 indicating slowing manufacturing activity and may continue weakness in the Chinese economy. The Chinese say they are in the middle of “repositioning” their economy. The HSBC numbers are given higher account then the government numbers that follow. Markets tend to go with the HSBC figures.

In Greece, three parties have formed a coalition government, however doubts about direct sovereign debt purchase may increase the borrowing cost of the peripheral nations and may cast a shadow over gains in today’s session.

Spain is scheduled for bond auction later during the session and may continue to weaken the shared currency “Euro” along with metals and energy. From the economic data front, the eurozone PMI along with the German may remain suppressed due to ongoing austerities and may further support downside.

However, the eurozone current account balance and US leading indicator may improve slightly and may provide slight support. Further the US manufacturing, labor and housing releases are expected to remain subdued due to weak economic development and may continue to weaken precious metals later during the session.

The plunge in gold this morning, saw it drop over 12.00 to 1602.00 could be the resultant of Asians responding to the Fed announcement. But we should be cautious about the stability of such fall. The recent fall would be due to anticipation of European reports that may replicate the agony of European distress later today. German and Euro zone manufacturing could be hurt and consumer confidence should remain feeble. Moreover, Spain is scheduled to auction bonds today but Merkel’s skepticism about direct buying of sovereign debt may again raise the yield over 7% which could keep gold under strain through the European session.

Irrespective of the immediate impact from the Fed decision, an insight into the details showed the Fed’s dim growth outlook with a pace ranging between 1.9-2.4%, and targeting further lower inflation to prepare the stage for next easing in June 31 meeting. The Fed commented on the poor jobs reports and continued to state that they would act if it was deemed necessary.


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