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The FTSE100 is expected to open 80 points lower at 6,760, the DAX is expected to open 108 points lower at 8,423 and the CAC40 is expected to open 31 points lower at 4,020

There was an expectation after Bernanke’s testimony on Capitol Hill yesterday that the latest Fed minutes wouldn’t add too much to overall market expectations around the prospects for further easing against expectations of possible tapering.

 

After an initially dovish statement the fact that the Fed chairman refused to rule out tapering this year in response to a direct question left the market none the wiser, apart from the fact it would probably come at some point, the only question would be whether it was sooner or later.

 

The release of the latest Fed minutes completely changed that dynamic with a single line, “a number of participants express a willingness to reduce QE in June.” 

 

This is hugely significant because this Fed meeting came before the most recent payrolls data and the huge upward revisions to the numbers that we saw at the beginning of May. If members of the committee felt this way before the huge upward revisions to the jobs numbers, then it stands to reason they probably feel even more inclined now, bringing forward the probability of an even livelier debate about the timing of a slowdown in the current levels of stimulus, when the Fed next meets on June 18th and the 19th.

 

In any event this was enough to stop US stocks in their tracks, retreating from more record highs, and will ensure, along with a much weaker than expected Chinese manufacturing PMI that European markets open lower this morning, as markets fret about an earlier than expected pull back of their favourite palliative.

 

We should know more after the next US employment report, but you can be certain another good report will ratchet up the expectations of the markets about a reduction in the scale of the current program, from the current $85bn a month, even if it overlooks the fact that the Fed’s balance sheet will still be growing, albeit at a slightly reduced pace.

 

Later today, the focus shifts back to the European economy after yesterday’s European Summit where the subject of tax evasion was high on the agenda. Considering the state of the European economy you would have thought that growth and employment measures would also have been in there somewhere, and though they were, EU leaders seemed to be more preoccupied with the tax side of things, while the talk of jobs and growth was almost a side issue with lots of words, but not much action.

 

We have the latest updated French, German and EU Services and Manufacturing PMI numbers for May and while we do expect to see some improvement the French numbers are still expected to remain remarkably weak, both below the 45 level.

 

At best the German numbers are expected to stagnate around the 50 level on the services side, but remain in contraction on manufacturing at 48.7.

 

Italian retail sales for March are expected to decline again by 0.1%

 

The UK economy and the pound will be hoping for a slug of good news after yesterday’s awful retail sales numbers for April, which saw a decline of 1.3%. Following on as they did with the sharp fall in inflation seen in April they have reignited the tired old debate about further stimulus from the Bank of England can be expected in the near term. The IMF also added their two pence worth to the debate by stating that they felt that the UK had some headroom for further fiscal measures to stimulate economic growth.

 

We have the latest iteration of UK Q1 GDP and given the recent improvements in manufacturing and industrial production numbers seen in the March numbers, there has to be a chance we could see a revision higher from 0.3%, even though it would seem most economists aren’t expecting that.

 

In the US the latest weekly Jobless claims are expected to show a fall back to 345k after last week’s shock rise to 360k.

 

EURUSD – yesterday’s rebound stalled just below the 200 day MA just above the 1.3000 level before slipping back towards this week’s low.  The 1.2800 level should retain an element of buying interest. Below that the twin lows at 1.2750, which we last saw in March and April, and they remain the main obstacle to a move lower, towards 1.2680. Only a move above 1.3020 argues for a move towards 1.3200. 

 

GBPUSD - the pound continues to remain weak with the key support remaining at 1.5020/30 level. A break below here suggests that we could well see a move back to this year’s lows at 1.4830. We need to see a move back through 1.5280 and this week's high to stabilise and suggest a move back to the 1.5400 level.

 

EURGBP - yesterday’s move above 0.8520 undermines the lower euro scenario and suggests the possibility of further gains towards the April highs at 0.8620. The 0.8520 level should now act as support where we have the 200 week MA. We need a close above 0.8520 on the week to suggest a shift in sentiment higher. Back below 0.8520 negates and suggests further range trading. 

 

USDJPY – we’ve seen further US dollar gains and look to be heading towards the 105.50 area after we took out this week’s highs at 103.30. The 102.80 level should now act as support for this move to unfold. A break through 105.50 which is 61.8% retracement of the 124.15/75.30 down move is the next obstacle towards a move towards 110.00. Given we have now broken the 100 level any pullbacks are likely to find support at the April highs. Only back below 99.80 retargets 98.50.

Global Gold prices fell further at the start of London trade on Thursday, hitting new 1-month lows beneath $1370 per ounce but leaving gold bars traded in East Asia at record-high premiums.

"[Western] investors appear to be tired of gold as a safe haven," says Mitsubishi analyst Jonathan Butler, quoted by Reuters, because "they anticipate the end of loose monetary policies, possibly by the end of this year or maybe early next year."

With US consumer price inflation data due just before today's Wall Street opening, five members of the US Federal Reserve were scheduled to make separate speeches at various events later on Thursday.

Four of them are voting members on the Fed's policy-setting committee.

"There also seems to be a return of risk appetite" amongst Western money managers, says Mitsubishi's Butler.

European stock markets today held flat after rising 12% in the last month.

The gold price in US Dollars extended Wednesday's drop to fall briefly beneath a one-month low of $1370 per ounce – a level first hit in October 2010.

Gold priced in Sterling fell closer to £900 per ounce, a level seen on only 4 trading days since May 2011.

"New highs in the US equity markets and plummeting bond yields," says Edward Meir at INTL FC Stone, "particularly in Europe, spurred the exodus away from gold and into financial assets on Wednesday.

The silver price, "which has been looking particularly poorly on the charts lately," says Meir, "is now within striking distance of its mid-April lows of $22 an ounce" – the lowest level since Oct. 2010.

"Rampant equity markets continue to attract investor funds away from gold," agrees a note from Japanese trading house Mitsui's New York team.

"The yellow metal looks to be heading for another look towards last month’s lows beneath $1350."

In contrast to Western money managers, Chinese investors "[have been] discouraged by the weak domestic stock market," says the latest Gold Demand Trends from market-development group the World Gold Council, "[and so] increasingly relied on gold to fulfil their investment needs."

Analyzing global data from the first 3 months of this year (which included the Chinese Lunar New Year holidays), the World Gold Council says China's total gold demand again outpaced demand from India – still the world's #1 in 2012 – by rising 20% from the same period in 2012 to a new quarterly record of 294 tonnes.

Indian demand rose 27% to 256 tonnes. So-called "retail" demand worldwide – meaning jewelry, small gold bars and coin – rose 11.5% by weight compared to Jan-Mar. 2012, with US gold jewelry sales rising 6%.

That was the first rise in US gold jewelry demand year-on-year since autumn 2005.

Opposing the rise in retail gold demand, says the World Gold Council, "[was] a well-documented decline in gold E.T.F. holdings...which outweighed the [global] growth in bar and coin demand."

In total, exchange-traded gold trust funds shed more than 175 tonnes during the first quarter.

The giant New York-listed SPDR Gold Trust (ticker: GLD) has shed a further 175 tonnes in the 6 weeks since, losing metal again on Wednesday to reach its smallest holdings since March 2009.

New regulatory filings for March 31st yesterday showed speculator George Soros's flagship hedge fund cut its position in the GLD by a further 12% during the first quarter.

Paulson & Co., the largest single investor in the GLD, maintained its position in the trust, which now holds 1047 tonnes of large gold bars in HSBC's specialist bank vault in East London.

Meantime in Asia, "Japan is clearly back from stagnation," reckons Citigroup economist Naoki Iizuka in Tokyo, commenting to Bloomberg today on new data showing a surprise 3.5% annualized rise in GDP during the first quarter.

The Japanese stock market took a pause Thursday from hitting new 5-year highs.

Premiums for 1 kilogram gold bars in Hong Kong and Singapore meantime rose to newly unprecedented levels above the bullion market's benchmark London price, according to private reports.

The excess demanded above 400-ounce London wholesale prices for kilobars (31 ounces) of 0.9999 fineness today reached $5 per ounce, up from last week's strong $3 level as demand held firm.

Adrian Ash

(c) BullionVault 2012

The FTSE100 is expected to open 2 points lower at 6,691, the DAX is expected to open 12 points lower at 8,350 and the CAC40 is expected to open 7 points lower at 3,975

It’s becoming an all too familiar pattern, as economic data disappoints, markets fall back briefly, absorb the setback and then drag themselves back higher again, on the basis that central banks will be there to catch the ball, whenever it gets dropped.

 

It seems this Teflon market doesn’t care whether the economic data is good, bad or just plain awful; the direction of travel remains the same as records continue to get broken on both sides of the Atlantic as stocks grind ever higher.

 

A record close for the DAX yesterday was followed by yet another record close for the S&P500 and the Dow Jones. Despite this it looks as if we will see a lower European open this morning.

 

Yesterday’s GDP data from Europe showed that the continent is in an even bigger slump than estimated with Germany just about eking out 0.1% growth in Q1, while France, Italy and the Netherlands all posted larger contractions in Q1 than originally estimated, as manufacturing activity continues to drag and unemployment levels push ever higher.

 

There were some bright spots, notably the UK, which in spite of a small increase in unemployment saw a rather upbeat Mervyn King deliver his final Bank of England inflation report as Governor. He exuded a fairly upbeat tone delivering a cautiously optimistic verdict on the UK economy, upgrading the bank’s growth forecasts, while downgrading the inflation forecast.

It wasn’t all good news though as average earnings continued to remain weak, rising 0.4% and further squeezing consumer incomes, relative to inflation.

 

There was also good news from Japan this morning as the economy starts to feel the effects of Abenomics as Q1 GDP rose the most in a year with consumer spending helping push it up 0.9%, well above expectations, while industrial production for March also jumped 0.9%, well above expectations of 0.2%. This suggests the weaker yen is starting to have an effect, with exports also rising sharply.

 

As for the US disappointing manufacturing and industrial production data for April points to a slow start for Q2 for the US economy with larger than expected drops in activity of 0.5%. Combined with a negative Empire manufacturing survey for May, coming in at -1.43 it seems the only part of the economy that appears to be showing any kind of recovery is the labour market.

 

Weekly jobless claims are set to come in at 330k, up slightly from last week’s 5 year low at 323k.

 

If today’s Philadelphia Fed survey shows similar weakness to the Empire survey it certainly seems reasonable to ask questions about the health of the manufacturing sector in the US as Q2 gets under way. Expectations are for a rise to 2.3 from 1.3.

 

Irrespective of these concerns it does appear that inflation isn’t a worry at the moment with factory gate prices falling sharply by 0.7% in April, largely as a result of lower oil prices and if today’s April CPI numbers are similarly benign, which they are expected to be at -0.3%, then its reasonable to assume that talk of Fed tapering will once again be put to one side.

 

EURUSD – the downward pressure on the euro continues to push it towards the twin lows at 1.2750, which we last saw in March and April, while below that we have broader support at 1.2680. Any pullbacks are likely to find resistance at  high this week at 1.3020 and the 200 day MA at 1.3000. The 1.3200 level remains the key resistance level while we also have 1.3235 the 50% retracement of the 1.3710/1.2755.

 

GBPUSD – yesterday’s brief break below the 1.5200 level keeps the pressure on for a move towards the April lows at 1.5030. The bearish weekly candle keeps the pressure on the downside, with only a move back above the 1.5410 level being able to stabilise and retarget the 1.5600 level. Interim resistance can also be found at 1.5280.

 

EURGBP – the failure to break above 0.8520 trend line resistance from the March highs at 0.8795 and the 200 week MA has seen the euro slip back. This remains the main obstacle to a move higher. Only a break below 0.8400 has the potential to open up a move towards 0.8315 trend line support from the 0.7755 low.

 

USDJPY – the US dollar continues to edge higher towards the 105.50 area, with another new multi-year high overnight. This 61.8% retracement of the 124.15/75.30 down move is the next obstacle towards a move towards 110.00. Given we have now broken the 100 level any pullbacks are likely to find support at the April highs. Only back below 99.80 retargets 98.50.

Wholesale gold bullion prices fell to three week lows around $1410 an ounce Wednesday, as European stock markets ticked higher, reversing earlier losses following disappointing Eurozone growth data.

Gold in Euros fell as low as €1094 an ounce, while gold in Sterling fell below £930 an ounce.

"Gold spot is approaching the support [level] of $1403 [an ounce]," say technical analysts at Societe Generale.

"There is no significant level of support between here and the low from April 16 in the $1322 area," adds the latest technical analysis from Scotia Mocatta.

The world's biggest gold exchange traded fund SPDR Gold Trust (ticker: GLD) could lose up to a further four million ounces (almost 125 tonnes) to add to the nearly 300 tonnes it has lost through redemptions since the start of the year, according to analysts at Deutsche Bank.

"We expect that the bulk of the drawdown comes from institutional investors rather than retail investors," says a report from Deutsche.

"If in fact only institutional selling is occurring in the gold E.T.F. then we expect that nearly two-thirds of the selling that is likely has probably already passed. As SPDR is roughly half of total physically backed E.T.F.s, this could imply a further 4 to 8 million ounces [approx. 125 to 250 tonnes] selling [from all gold E.T.F.s] if macro fundamentals continue to move against gold."

"In the short term, gold prices remain caught between the recent slowdown in US activity and the significant decline in ETF holdings," adds a note from Goldman Sachs, whose analysts have a 12-month gold forecast of $1390 an ounce.

"While the sell-off in gold prices has been faster than we expected, with prices below our near-term forecasts, further unwind of ETF positions would likely continue to precipitate this decline...going forward, we expect that gold prices will continue to decline should our economists' forecast for a reacceleration in US growth later this year prove correct."

"Gold is likely to remain sensitive to potential dialog regarding the Fed's QE intentions," adds a note from HSBC, referring to the US Federal Reserve's ongoing $85 billion a month quantitative easing policy.

"Further comments by Fed members for scaling back QE would be negative for bullion prices."

Silver meantime fell to around $23 an ounce this morning, like gold hitting a three-week low, as other commodities also dipped and US Treasury bonds gained.

On the currency markets, the Euro fell to a six-week low against the Dollar Wednesday, while the Yen touched a fresh four-and-a-half year low, as Japan's Nikkei 225 index breached 15,000 for the first time in over five years.

Over in Europe, France fell back into recession in the first quarter, according to provisional GDP data published Wednesday that show a second successive quarter of negative growth. German Q1 growth meantime was 0.1%, provisional figures show, less than the consensus forecast among analysts. GDP for the Eurozone as a whole contracted 0.2% in Q1, data published this morning show, to make a 1% year-on-year drop in economic output.

Ratings agency Fitch meantime upgraded its credit rating for Greece Tuesday, citing progress on cutting the government budget deficit, although Fitch still rates Greek government bonds as junk with a rating of B-.

The latest Bank of England Quarterly Inflation report, published this morning, shows a "welcome change in the economic outlook", according to outgoing governor Mervyn King.

"Today's projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago," King told reporters this morning.

"That is the first time I have been able to say that since before the financial crisis." King added however that "the challenges facing central bankers are as great as they have ever been".

Ben Traynor

BullionVault

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it

The FTSE100 is expected to open 11 points higher at 6,697, the DAX is expected to open 21 points higher at 8,360 and the CAC40 is expected to open 4 points higher at 3,970

After two days of EU politicians arguing and bickering about the potential time line for a European Banking Union attention now turns back to GDP numbers across the Eurozone bloc later this morning and they aren’t expected to paint a pretty picture.

 

Yesterday’s ZEW survey for May from Germany was a disappointment coming in below expectations of 39, at 36.4 despite the DAX being at record highs. This suggests that investors do have concerns about the sustainability of the current move higher when set against the bleak economic backdrop across Europe.

 

The recent ECB rate cut may have helped with respect to some of the recent euro weakness on the margins; however any further weakness is likely to be more as a result of the continued recovery in the US economy, boosting the US dollar and raising market expectations of the likelihood of a possible Fed tapering program.

 

Today’s latest Q1 GDP numbers are expected to show that the European economy is far from on the right track as EU leaders continue to argue about the merits or otherwise of banking union while economic growth continues to remain elusive and unemployment continues to explode higher, especially for those under 25.

 

Germany is likely to be the only bright spot despite recent disappointing PMI’s with expectations of a growth of 0.3%, still some way short of the 0.6% contraction seen in Q4. That is where the good news is likely to end though with the French economy expected to contract 0.1%, Italy’s economy to contract 0.4%, Holland to contract 0.1% and Portugal to contract 0.3%.

 

The wider EU measure is expected to show a quarterly contraction of 0.1%, and a 0.9% contraction annualised.

 

While EU leaders continue to congratulate themselves on the continued fall in sovereign bond yields citing them as a sign of confidence, of which they are nothing of the sort, they continue to waste time in failing to deal with the real problems of the banking sector and the transmission mechanism in Europe.

 

Seemingly able to shake off the EU malaise in its first quarter numbers the UK economy was able to grow 0.3% at the start of the year. In spite of this the pound has started to slip back after posting 3 month highs at 1.5600 earlier this month.

 

With the Bank of England inflation report due out later and the recent fall in oil prices there is a high likelihood that the Bank may downgrade its inflation forecasts. This is likely to weigh on the pound irrespective of whether we get any further easing in the short term.

 

Unemployment is expected to remain constant at 7.9%, but it is average earnings which are likely to show that the UK consumer remains squeezed with a rise of 0.7% expected, well below the current inflation rate of 2.8%.

 

EURUSD – the failure to push much beyond the pushing below the 200 day MA at 1.2995 keeps the onus towards the downside and the potential for further weakness. While below 1.3020 the risk remains for a move back towards the 1.2755 March and April lows. The 1.3200 level remains the key resistance level while we also have 1.3235 the 50% retracement of the 1.3710/1.2755.

 

GBPUSD – a bearish weekly candle last week and the break below trend line support from the 1.4835 lows at 1.5345 opens up the risk of a move lower towards the 1.5200 level. A break through 1.5200 targets a move towards the April lows at 1.5030. We need to get back above the 1.5410 level to stabilise and retarget the 1.5600 level.

 

EURGBP – the euro briefly broke above the 0.8500 area but ran into resistance at 0.8520 trend line resistance from the March highs at 0.8795 and the 200 week MA. Only a break below 0.8400 has the potential to open up a move towards 0.8315 trend line support from the 0.7755 low.

 

USDJPY – the US dollar remains on course for the move towards the 105.50 area, with another new multi-year high overnight. This 61.8% retracement of the 124.15/75.30 down move is the next obstacle towards a move towards 110.00. Given we have now broken this key top any pullbacks are likely to find support at the April highs. Only back below 99.80 retargets 98.50.

Spot Gold fell towards three-week lows Tuesday, dropping as low as $1423 per ounce, as the Euro also fell against the Dollar after comments from those attending today's Eurozone finance ministers' meeting appeared to show disagreement over the creation of a banking union.

Days after Germany's DAX index set a new record high, European stock markets extended yesterday's losses this morning.

"Due to US Dollar strength and record levels in European shares, gold has been losing its 'safe haven' appeal in recent days," says a note from German-based refinery group Heraeus.

Gold in Euros meantime dipped briefly below €1100 an ounce, while gold in Sterling fell below £935 an ounce.

Silver meantime fell to the lower end of its range for the past three weeks, dropping below $23.50 an ounce, as other commodities also dipped lower.

US Treasuries gained while German Bund prices fell.

The Eurogroup of single currency finance ministers were expected to discuss the creation of a banking union – which would include deposit guarantees and supranational supervision of financial institutions – as part of their meeting today in Brussels. 

"We want a single European resolution regime," European Central Bank executive board member Joerg Asmussen said, "together with a single resolution agency and a single resolution fund that is financed by a levy from the banking industry. This should come into place in parallel with the single supervisory mechanism hopefully by the summer of next year."

Shortly after Asmussen's comments were reported the Euro gave up today's gains against the Dollar, dropping back below $1.30. 

In contrast with Asmussen's comments, German finance minister Wolfgang Schaeuble told reporters a day earlier that existing European treaties "don't give enough foundation for a European [banking] restructuring authority".

"You can do the same thing very well with a network of national authorities," Schaeuble added.

"We should go as far as possible within the current treaties," countered French finance minister Pierre Moscovici, "and then think about what could require a change in treaty. Our belief is that we can go very far."

"The Germans are putting forward understandable questions which will have to be dealt with," added Eurogroup president and Dutch finance minister Jeroen Dijsselbloem.

"But I don't see why that would stop us making progress on the banking union."

Ireland meantime may seek to use the ECB's Outright Monetary Transactions program – whereby the ECB pledges to buy government bonds on the secondary market to prevent a sharp rise in borrowing costs – as it exits its bailout, the country's finance minister said Monday.

"We haven't decided in government yet whether we will apply or not," said Michael Noonan, "but it is something that seems to be a mechanism that is working very well."

The supply of scrap gold sent to refineries is expected to drop 4% this year compared to 2012, according TD Securities. The Toronto-based brokerage says around 1550 tonnes of scrap gold will be recycled during 2013, the lowest total since 2008, Bloomberg reports.

Last month saw gold's biggest two-day drop in three decades.

"A lot of people were shocked," says Arthur Abramov, owner of cash-for-gold business Manhattan Buyers Inc., which saw its monthly volume of gold recycled fall by 40% to 300 ounces.

Over in India, yesterday's Akshaya Tritiya festival, viewed as an auspicious day to buy gold, saw an increase in gold jewelry sales compared to last year, according to local press reports.

"Sentiment of gold buying has turned positive," says Haresh Soni, chairman of the All India Gems & Jewellery Trade Federation, adding that he expects gold sales for yesterday to show a 20-25% increase on last year's festival.

Ben Traynor

BullionVault

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

The FTSE100 is expected to open 18 points higher at 6,650, the DAX is expected to open 15 points higher at 8,294 and the CAC40 is expected to open 6 points higher at 3,951  

 

Despite Asia markets being somewhat stodgy this morning investors remain in the mood to take equity markets higher this morning after yesterday’s improved US retail sales numbers and as such European markets look set to open higher this morning.

 

On a fairly light day for economic data, apart from the latest German ZEW survey and European industrial production numbers, we can once again amuse ourselves as European policymakers continue to bicker and squabble and tie themselves up in knots about the timing or otherwise of a banking union with the start of the latest Ecofin meetings.

 

Yesterday we saw Cyprus get its first aid tranche of €2bn while the Eurogroup came to an agreement with respect to the release of the latest tranche of Greek aid of €4.2bn with another €3.3bn to be released in return for further measures. It was also agreed that Portugal met the criteria for another €2.1bn of aid.

 

Today’s Ecofin meetings are likely to focus on the next steps with respect to a banking union with the Eurogroup chief and Dutch finance minister Djisselbloom insisting that the necessary steps could be taken without treaty change, a position which did not find favour with German finance minister Wolfgang Schaueble who insisted that any such measures would require treaty change.

 

The Eurogroup chief was also joined by French finance minister Moscovici and other finance ministers in insisting that the necessary steps should be completed quickly ideally by the end of the summer, though Mr Djisselbloom also went on to add any treaties could be changed later in order to ensure any new measures have a solid legal basis.

 

This does rather beg the question if you can pass the necessary measures now without contravening EU law, then why change the treaty at all, which would seem to suggest that once again EU finance leaders are practising cognitive dissonance.

 

It remains highly unlikely that Germany will agree to anything resembling banking union before September’s elections which is probably why Mrs Merkel has remained fairly quiet on the matter.

 

In any case the health of the German economy will once again be back in the spotlight today with the latest ZEW sentiment survey for May. After the 6.9 reading at the end of last year we saw large jumps in Q3 peaking at 48.5 in March, however we saw a sharp drop to 36.3 in April, in the wake of the problems in Cyprus and Italy.

 

There is an expectation of a small rebound to 39.5 in the wake of the recent record highs in the DAX and last week’s rebounds in factory gate and industrial production data for March.

 

This number should be treated with care though as it is a barometer of investor sentiment and given the safety net afforded by central banks it could bring a false sense of security. The IFO survey is a much better indication of German sentiment, but that isn’t released until the 24th.

 

In light of last week’s better industrial production numbers from Germany we get the latest Eurozone industrial production numbers for March and we can expect a monthly improvement here as well from February’s 0.4% rise with an increase of 0.5% expected, though this could be higher in light of Germany’s better numbers last week.

 

EURUSD – the failure to push much beyond the pushing below the 200 day MA at 1.2995 keeps the onus towards the downside and the potential for further weakness. While below 1.3020 the risk remains for a move back towards the 1.2755 March and April lows. The 1.3200 level remains the key resistance level while we also have 1.3235 the 50% retracement of the 1.3710/1.2755.

 

GBPUSD – a bearish weekly candle last week and the break below trend line support from the 1.4835 lows at 1.5345 opens up the risk of a move lower towards the 1.5200 level. We need to get back above the 1.5410 level to stabilise and retarget the 1.5600 level.

 

EURGBP – the euro continues to chop between support at 0.8400 and resistance at 0.8500. Only a break below 0.8400 has the potential to open up a move towards 0.8305 trend line support from the 0.7755 low. Below that we also have the 50% retracement of the 0.7755/0.8815 up move at 0.8280. The main resistance remains at the 0.8500 level and while below the 200 week MA at 0.8520.

 

USDJPY – finding a few sellers around the 102.20 area, however last week’s break above the 100 level opens up the potential for a move towards 105.50, 61.8% retracement of the 124.15/75.30 down move. Given we have now broken this key top any pullbacks are likely to find support at the April highs. Only back below 99.80 retargets 98.50.

The FTSE100 is expected to open 21 points lower at 6,430, the DAX is expected to open 16 points lower at 7,898 and the CAC40 is expected to open 39 points lower at 3,818.

US markets slipped back sharply overnight even though the latest Fed statement didn’t contain too many surprises given the recent slowdown in US economic data. There was one small important difference in that the FOMC not only talked about tapering asset purchases, but they opened up the option of increasing them if the need arose.

 

“The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation” was the key line which markets took pretty much in their stride as investors chose to focus on yesterday’s disappointing economic data rather than central bank jawboning.

 

These declines look set to translate into a lower European market open as it appears that equity investors could well be starting to get the same jitters that commodity market traders have been getting for several days now as those two key economic bellwethers copper and crude oil plunge on fears about falling demand, record inventories and growth concerns.

 

The weaker than expected ADP number and ISM employment component from yesterday’s economic data has also prompted some significant downgrades to Friday’s payroll number, however that will have to wait as markets have more pressing concerns now that the FOMC is safely confined to the rear view mirror.

 

The main focus today is back on the slow asphyxiation of the European economy with the final iterations of manufacturing PMI data for April from Spain, Italy, France, Germany and the wider euro area, ahead of the latest monthly European Central Bank rate meeting.

 

We shouldn’t expect too many surprises from the PMI numbers seen last week with slight improvements to Spanish and Italian numbers, 44.6 and 44.9 respectively. The French number is expected to remain at 44.4 and Germany at 47.9, with the Eurozone measure coming in at 46.5.

 

All of this leads us to the main event which is the ECB rate meeting where it would be a huge surprise if the ECB did not cut their headline rate by 0.25% to 0.50%.

 

To be fair to Mr Draghi he doesn’t have much wriggle room given that he is becoming boxed in by a rising euro and a more dovish Fed, and while everyone universally acknowledges that any cut is likely to be symbolic and have no real effect, the real work will probably come in the press conference.

 

In order to weaken the euro Mr Draghi will have to paint a much bleaker picture of the European economy than he did a month ago, which would suggest we will see a downgrade of both inflation and growth forecasts.

 

Europe’s main problem isn’t low interest rates, one look at Euribor and Eonia will tell you that, it is to do with a lack of confidence in politicians to do what is necessary to implement unpopular economic reforms to make their economies more competitive.

Add in the problem of a lack of demand for credit as consumers and businesses retrench as unemployment rises and economies contract and you have a combination that no amount of low rates or QE will solve.

 

The fact is any move the ECB makes today is likely to be about as much use as rearranging the deckchairs on the Titanic.

 

The reality is until the legacy of over-leveraged banks and consumers is dealt with across Europe; banks will remain reluctant to lend, whatever politicians say about with respect to the austerity versus growth debate, and is a distraction to the real problem.

Until politicians acknowledge this fact any economic recovery will be held back. No amount of low interest rate levels can alter that inescapable fact, and politicians need to realise this quickly.

 

Also out today is the April construction PMI for the UK after a much better than expected manufacturing number yesterday of 49.8. This has raised expectations that the UK economy could be starting to idle along, albeit at very low revs. Expectations for construction are for a reading of 48, slightly better than March’s 47.2.

 

EURUSD – yesterday’s euro rally ran out of steam at 1.3235 a 50% retracement of the 1.3710/1.2755 down move. A move beyond here would target 1.3345 which is the 61.8% measure. Having posted a shooting star the euro needs to stay above the 100 day MA at 1.3160, otherwise we could well see a slide back lower again towards the key support at the 200 day MA at 1.2960 which we last saw at the beginning of April. Only a move below the 200 day MA retargets the twin lows at 1.2755.

 

GBPUSD – the long term target at 1.5600 was hit last night but the  50% retracement level of the 1.6310/1.4830 down move has held for now. A move through here has the potential to hit 1.5780. Any pullbacks should find support at the 1.5410 area, but the primary trend line support remains at 1.5275 from the lows at 1.4830. Only a break below 1.5200 opens up the risk of a move to the 1.5035 April low.

               

EURGBP – the current pullback has so far been unable to crack the 0.8500 level and while below the 200 week MA at 0.8520, the risk remains for a move back towards this week’s low around the 0.8400 area. Back above 0.8520 targets 0.8580 while a move below 0.8400 targets 0.8280 the 50% retracements of the 0.7755/0.8815 up move.

 

USDJPY – downside pressure continues to build up with a new low yesterday at 97.00. The key support remains at the lows two week’s ago between 96.60 and 96.00. While below 98.80 the risk remains for a further downside push. Only a break below 96.60 could well see further weakness towards the April lows at 92.60. A break beyond the 100 level could well see a move towards 105.50, 61.8% retracement of the 124.15/75.30 down move.

Following a dip during Asian trading, the gold price climbed back above $1470 per ounce Tuesday morning in London, broadly in line with where it was a day earlier, with China's markets shut for this week's Labor Day holiday.

Silver ended the morning in London around $24.40 an ounce, also little-changed from a day earlier, while other commodities and stock markets failed to hold onto gains from earlier in the day, while US Treasuries gained.

"Gold's recovery appears to be faltering somewhat," says this morning's commodities note from Commerzbank.

"From a technical point of view," adds ANZ head of global markets research Asia Tim Riddell, "although the rebound has been relatively solid, it appears to be a more sustained correction of the fall that we saw from late March, rather than a turn in trend. Really what we need to see is a series of closes above$1505 to take the pressure off."

By Tuesday lunchtime in London gold looked set to record its biggest monthly loss in Dollar terms since December 2011, down nearly 8%, based on London Fix prices.

In Euro terms gold was headed for a 9.5% loss, the biggest since July 2010. In Sterling gold was down 9.6%, also the biggest monthly loss since July 2010, although an afternoon fix at £951 an ounce or below would make for the biggest monthly drop since October 1990.

Gold's sharp price drop earlier this month "broke below the $300 range which prevailed from the highs in July 2011," says technical analysts at Societe Generale. 

"This confirmed a major double top which projects a target at $1265...the indicators are toppish and call for vigilance."

Elsewhere at that bank however another SocGen strategist repeated a case for a $10,000 gold price last week.

Since the low of $1322 an ounce touched on April 16, gold has rallied more than 10% as the lower gold price has been met by strong demand for physical gold in many parts of the world, especially in the form of smaller bars, although "physical buying has slowed down" according to one Hong Kong dealer speaking to newswire Reuters Tuesday.

"The problem in the market is the tight physical supply," the dealer said. "It will take time to refine the metal."

"We are producing 24 hours a day," says Frederic Panizzutti, global head of marketing and sales at Swiss bullion refiner MKS.

"[Strong demand for physical bullion] is all across the globe...the fact that premiums are so high, it means that no one is making enough."

The US Mint meantime has sold 312,500 of American Eagle bullion gold coins so far this month, the biggest monthly total since June 2010.

By contrast, gold exchange traded funds tracked by Bloomberg continued to see outflows throughout April, losing 168.2 tonnes, the biggest monthly drop on record. By comparison, Barclays reported at the start of the month that gold ETFs saw outflows of around 154 tonnes for the whole of the first quarter of the year.

Of these, the world's biggest gold exchange traded fund SPDR Gold Trust (GLD) has seen its holdings fall 11.5% this month to 1080 tonnes, the lowest since September 2009.

The recovery in the gold price has also been due to "the combined impact of a weaker Dollar and on market chatter that the Federal Open Market Committee meeting this week and the European Central Bank policy meeting will confirm ongoing monetary easing in the United States and Europe," says a note from HSBC.

The note adds that HSBC's currency analysts see diminishing expectations that the Fed will announce an early end to its ongoing quantitative easing asset purchases. 

The FOMC begins its latest policy meeting today ahead of a decision tomorrow, while the ECB is due to make its latest policy announcement Thursday.

German unemployment rose by 4,000 this month, figures published Tuesday show, twice the consensus forecast among analysts, although the seasonally adjusted unemployment rate remained steady at 6.9%. 

For the Eurozone as a whole meantime the unemployment rate ticked higher to 12.1% last month.

Elsewhere in Europe, Italy's new prime minister Enrico Letta told parliament Monday that the country "will be lost" unless it adopts policies aimed at stimulating economic growth.

Ben Traynor

BullionVault

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it

The FTSE100 is expected to open 15 points higher at 6,473, the DAX is expected to open 43 points higher at 7,916 and the CAC40 is expected to open 9 points higher at 3,878

When I tweeted only half-jokingly yesterday, “23 point plunge on the Dallas Fed and 14 point plunge on new orders - nothing to see here - move along...buy stocks” I suppose I shouldn’t have been unduly surprised when the S&P500 went on to post a new record close in late trade last night in the US.

 

This investor enthusiasm should translate into a positive European open this morning despite the prospect of yet more disappointing economic data later, as investors buy into the growing “bad news is good” investment strategy for stock markets.

 

It seems once again that equity markets continue to believe in the all-important omnipotence of central bankers to engineer an economic recovery from money created out of thin air, without any effort from politicians to enact economic and political reforms.

 

It is this belief that is likely to support European markets today, if as expected today’s economic data continues to worsen.

 

The rot is likely to start with the publication of Spanish Q1 GDP which is expected to show a quarterly contraction of 0.5%, and a 2% contraction year on year as the Spanish economy continues to buckle under record high unemployment of 27% and rapidly declining house price values.

With ratings agency Standard and Poor’s predicting that property prices could fall another 13% by year end the prognosis looks grim not only in Spain but for the rest of Europe as well.

 

While German unemployment numbers for April are due up next, and expected to remain at 6.9%, these could be as good as it gets for Europe with Italian unemployment for March set to rise to a record 11.7% in figures released 5 minutes later.
 

It is hard to see how new Prime Minister Enrico Letta’s decision to cancel €6bn of new tax rises in clear challenge to the EU’s demands that EU countries strive to balance their books, will change the upward trajectory in this number. His trip to Berlin this week to see Angela Merkel could well make for an interesting conversation.

 

This is set to be followed by another record high for European unemployment to 12.1%, in March, from the 12% number in February and is likely to increase the growing calls for an ECB rate cut this week, which markets continue to be fairly relaxed about.

 

Having shrugged off yesterday’s poor economic data out of the US markets will once again be looking to this afternoon’s Chicago PMI data for March after the poor Dallas numbers yesterday. Expectations are for a small increase to 52.5 from 52.4 while consumer confidence numbers for April are expected to show an increase to 61.4 from the sharp fall to 59.7 seen in March.

 

Whatever these numbers come in at, the main focus this week is likely to be on tomorrow’s ISM manufacturing data and Friday’s payroll report, with no change in tone expected from the Fed at its latest meeting tomorrow.

 

EURUSD – the lack of pullback from recent tests above the 1.3100 level suggests that it seems only a matter of time before we have another go at the 100 day MA at 1.3160 and the April highs at 1.3200. The downside also seems to be somewhat limited as well. The 200 day MA remains the key support on the downside at 1.2950 which we last saw at the beginning of the month. Only a move below the 200 day MA retargets the twin lows at 1.2755.

 

GBPUSD – the pound remains on course for a move towards 1.5600 and the 50% retracement level of the 1.6310/1.4830 down move. The 1.5410 area should continue to act as some form of support, but the primary trend line support remains at 1.5235 from the lows at 1.4830. Only a break below 1.5200 opens up the risk of a move to the 1.5035 April low.

               

EURGBP – the recent pullback in the euro needs to stay below the 200 week MA at 0.8520 for the recent down move to continue. We also have resistance in the 0.8480 area which could limit the upside. While below this area of resistance the risk remains for a move towards the 50% retracement of the 0.7755/0.8815 up move at 0.8280, which would be confirmed on a break below 0.8400.

 

USDJPY – the failure to break beyond the 100 level looks likely to see a correction lower back towards the lows two week’s ago between 96.00 and 96.60. Yesterday’s low at 97.35 has prompted a pullback which could extend to 98.80. Only a break below 96.60 could well see further weakness towards the April lows at 92.60. A break beyond the 100 level could well see a move towards 105.50, 61.8% retracement of the 124.15/75.30 down move.