Weekly Fundamentals - European Countries Push for Sanctioning Iran
Financial markets this week continued to be directed macroeconomic uncertainty, especially deficit issues in both sides of the Atlantic. Risk appetite was hurt as the US Congress failed to agree on the 12 trillion saving plan over 10 years. While rating agencies affirmed that the US credit ratings would be maintained, downgrades of the outlook remained possible. In the Eurozone, signs of contagion have become more apparent. Germany's bond auction disappointed the market. It only received 3.89B euro of bids for 10-year bond sales worth of 6.00B euro. The market described the outcome as 'truly miserable' and a 'disaster' as it showed that the Eurozone's biggest economy has experienced difficulty in securing public funding. The situation in France, the second largest economy in the 17-nation region, was not better off. Following Moody's and S&P's, Fitch's warned that the credit rating of France is at risk. In a report to investors, 'the increase in government debt has largely exhausted the fiscal space to absorb further adverse shocks' without undermining the triple A status.
During the week, ratings of Portugal and Hungary were downgraded. Fitch's downgraded the credit rating of Portugal to BB+ from BBB-, citing the government would find it more challenging to lower its budget deficit in the midst of deepening recession. Yet, the agency still expected the country to meet its fiscal target both this year and in 2012. At the current rating, Fitch's view on Portugal is the worst among the 3 major rating agencies. Moody's rating is Ba2 while S&P continued to hold Portugal's debts in investment grade. Meanwhile, Moody's cut Hungary's credit rating by one notch to Ba1 from Baa3, signaling worries about the country's ability to lower its deficits as economy deteriorates further.
Both the FOMC and the BOE released minutes for the November meetings. The Fed discussed a wide range of tools to improve communication with the market. While some members favored language that specified a period when the funds rate was expected to be low, as opposed to a calendar date, other measures including nominal GDP targeting and inflation target were also suggested. The BOE policymakers voted unanimously to leave the Bank rate unchanged at 0.5% and the asset-buying program at 275B pound. The members acknowledged that 'the existing program of asset purchases would take a further 3 months to complete and market capacity made it difficult to increase the monthly rate of purchases substantially above what was already under way'.
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Gold's fall from 1804.4 extended to as low as 1667.1 before forming a temporary low there and turned sideway. Initial bias is neutral initially this week and some more sideway trading might be seen. But near term outlook will stay bearish as long as 1736.6 support turned resistance holds. Current development suggests that whole rebound from 1535 has completed with three waves up to 1804.4. Below 1667.1 will target a test on 1535 support. On the upside, though, break of 1736.6 will turn focus back to 1804.4 resistance instead.
After edging lower to 30.65, silvered formed a temporary low there and recovered. Nonetheless, the recovery was limited by the 4 hours 55 EMA, as well as below 33.13 resistance. Hence, near term outlook remains bearish and fall from 35.7 is still expected to continue. Below 30.65 will target 61.8% retracement of 26.15 to 25.70 at 29.80. Decisive break there should pave the way to 26.15 support and below. On the upside, though, break of 33.13 will suggest that fall from 35.70 is possibly over and flip bias back to the upside to retest this resistance instead.
Crude oil's consolidation from 103.37 short term top continued last week and deeper fall could still be seen with 100.15 minor resistance intact. Nonetheless, downside is expected to be contained by 89.16/17 cluster support (50% retracement of 74.95 to 103.37) and bring rebound. On the upside, above 100.15 minor resistance will turn bias neutral and bring consolidations. But break of 103.37 resistance is needed to confirm rally resumption. Otherwise, we'll stay near term neutral and expect more sideway trading first.
The strong rebound from 3.285 and break of 3.479 resistance suggests that a short term bottom is formed, just ahead of 61.8% projection of 4.612 to 3.446 from 3.978 at 3.257 and 3.255 key support level. Initial bias is mildly on the upside this week for further rebound towards 55 days EMA (now at 3.679). But we'd expect strong resistance from 3.978 to limit upside. On the downside, below 3.415 minor support will suggest that such recovery is finished and will flip bias back to the downside for retesting 3.285 support. |
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