November 09, 2024 (MLN): Last week was very eventful due to US elections, FED and Bank of England's decision on interest rates.
It is all over with Donald Trump surprise comeback, FED and BOE both slashing the interest rates by 25 basis points.
Despite election result Fed Chairman Powell's stance was a balanced one as he maintained his calm approach. In his press talk he said that the election result won't affect the policy assessment. But hinted cautious approach to further cutting of interest rate.
He said, FOMC members will be meeting again in December, by that time additional economic data will be available which will help to determine the impact of inflation.
After the high profile week, with DXY hitting four month highs of 105.44 on Wednesday to close at 104.83, which is up by 0.64% as USD surged.
US Treasury yields, stock market rose and cryptocurrencies skyrocketed.
The big question is that how will the Fed react in December, as Trump will take over the Presidency in later months. He has already stated that he will be tough on tariffs, which will be inflationary.
After the US election and Trump to take the charge, there is a possibility of change in the dynamic of politics. Because he has been talking about peace, prosperity and brighter future. So market will be waiting to see if this happens. This may take some time.
While, if you recall, in my last weeks post I warned of steep fall in the price of gold after the election results. Gold fell by USD 85 and then rose again. The 50% rebound was unsustainable, as it dropped once more prior to Friday's close.
There can still be some argument about gold regaining momentum and strength, but I will prefer a cautious approach as gold may not be able to maintain the previous momentum and will struggle to gain new heights for sometime.
This I am saying because USD is still in good demand. Beyond USA, there is surely liquidity constraints.
According to market analysis, specially if we look in the Europe's financial sector, the swapping cost for the first time since 1999 has gone in negative, which means after borrowing the Euro and to swap it with USD it is becomes very expensive.
Though this could be early, but if I am reading it correctly, then in coming days/months USD shortage could hit the stock market, real estate and gold too could suffer.
If my reading is accurate, then the Fed swap limit and activities would need to be raised and modified. All this could happen because USD is still a safe haven asset.
Meanwhile, comparatively after such an explosive last week the economic calendar this week is quite an average. US CPI Core Inflation, PPI, Weekly Jobless Claims, US Retail Sales, NY Empire State Manufacturing Index and Fed Chair Powell Speech will provide the next economic direction.
#GOLD @ $ 2684- Gold will probably continue to be under pressure unless it can break through the resistance level of $2712-14 and clear $2720-25.
The risk of a fall will increase if $2660-62 gives up for a test of $2642-48 zones.
#EURO @ 1.0718- Euro is anticipated to retain its strong support near 1.0620-40. It needs to clear 1.0880 for 1.0920 on the upside. or 1.0570.
#GBP @ 1.2921- I suspect the pound sterling will rise after the decline. It still needs to preserve 1.2820–40 levels.
However, only a break of 1.3020–40, will allow for 1.3080. Or 1.2780 otherwise.
#JPY @ 152.73- USD can recover its strength as long as 151.20-40 holds.
It is expected to stay within the range, though, unless it moves above 154.30.
The writer is the former Country Treasurer of Chase Manhattan Bank
Disclaimer: The views and analysis in this article are the opinions of the author and are for informational purposes only. It is not intended to be financial or investment advice and should not be the basis for making financial decisions.
Posted on: 2024-11-09T20:51:09+05:00
