Gold Bears Poised as Prices Mount $1600- Cypress In Focus
Fundamental Forecast for Japanese Yen: Bearish
- Crude Oil at Risk if Cyprus Weekend Risk Sparks Selloff
- Gold Stalls ahead of Important Resistance Levels
- Gold to Follow Crude Oil Higher on Dovish FOMC Outcome
Gold took another leg higher this week with the precious metal advancing by 1% to close the week at $1608 in New York on Friday. With key event risk from the Federal Reserve now in the rear view mirror, another crisis in Europe has gripped markets as Cypress now faces a heavy levy on bank depositors or even worse, a Euro exit. As the drama continues to unfold, bullion has slowly crawled higher with key sell-zones now coming into focus as investor focus remains fixated on Cypress.
The FOMC rate decision on Wednesday proved to be uninspiring for gold with Fed Chairman Bernanke taking a cautious stance on monetary policy amid improving US economic data. While the press conference offered little substance, a closer look at the quarterly projections notes a slight change in the committee's spread as it pertains to the appropriate timing of policy firming with now only one member expecting to tighten in 2013. Traditionally, one would expect that gold demand would remain well supported on account of fears over inflationary pressures. However with the Fed's inflation outlook, (which did see a slight widening in the central tendency) continuing to suggest a stable pace of price growth, the impact is likely to be limited.
Looking ahead to next week, investors will be closely monitoring developments out of the Europe as ongoing saga in Cypress keeps traders on edge. While the size of the economy is but a small percentage of the overall Eurozone economy (about 0.2% of GDP), the precedent a decoupling could set may send ripples through the region amid a prolonged recession that posted a 5th consecutive q/q contraction in the fourth quarter. US data also picks up next week with durable goods, consumer confidence, pending/new home sales, and personal income/spending all on tap. A more pronounced risk-off trade could offer further support for the recent gold rally, but with bullion now nearly 4% off the lows, the upside looks limited as prices head into a key resistance region.
From a technical standpoint, our bias remains unchanged and while out broader bias remains weighted to the downside, the risk for a topside run into key resistance in the range between $1626-$1631 remains. The Cypress event risk presents just the variable that could trigger this run. That said, this threshold remains our area of interest with only a weekly close above this mark invalidating our medium-term outlook which, in such a scenario, would look to target $1646-$1650 region. Daily support rests at $1600 with a break below $1585 eyeing critical Fibonacci support in the range between $1550-$1555. Note that daily RSI does leave some room for a near-term rally into our objective range before challenging the 60-threshold. Bottom line, looking to get short a bit higher. -MB
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