A month ago I predicted a short term bull rally of the $AUDUSD and downfall of $XAUUSD and it worked just like that. So whats gonna happen from now onwards. Well, the entire news spectacle is on the US Government who is acting no different than governments in emerging markets like India & South Africa to name a few. The probability of either of the parties reaching a deal by the end of next week is quite high as if they don’t the losses can be quite catastrophic for the US economy. Not only its the monetary losses and backlog of functioning from the government side that will hurt the economy but it will be the distrust issue in the mind of investors that will hurt them the most. For the world’s largest debtor nation not being able to display strong governance in Washington is just another blow for there economy after there regulatory framework took a hit in the showdown of 2007.
So, lets get into the currency outlook for the week without any further ado:
EUR/USD had a correction of sorts from its bull rally on Friday as its RSI reached 70 on Thursday. RSI suggests that it might start going down but I would not get into any short trades until it breaches below the 1.3400 mark. I’m currently in the money for a Long EUR/USD trade that I opened at 1.3500 and looking to t/p at 1.3710 with a s/l of 1.3395.
GBP/USD took a big hit on Friday after showing amazing strength among all its major peers. On RSI it seems like it is time to sell but I would only play this currency on a scalping basis. It may find support at the 1.5950 trend line level which developed since the 2008-2013 ascending triangle formation that it breached in Feb 2013 that saw the GBP/USD to reach multi year lows at 1.4850 levels. I would stay away from this currency as I think that the market is undecided on this pair and scalping is not my way of trading.
AUD/USD has still more upside in it before we see any bear run on this currency. The RBA statement that came out last week was bullish for the currency but as the house prices in the country went up by double digits, the RBA has a big headache on how to contain it without increasing interest rates. As for its neighbor, the Kiwi central bank made it clear of its intentions to increase the interest rate after seeing a sudden increase in their nation’s house prices as well.
Gold is one of my favorite assets unlike what the haters would think. Gold has been part of mankind since time and it has been the means of currency throughout history. Even though the Gold is having a hard time for the first time in more than a decade I would never think about shorting without a hedge bet on. I bought Gold futures when it fell down to $1235 an ounce and I would not close until it breaches the $1270 level. I would always look at opportunity to buy Gold as with high inflation in the coming decades Gold prices will eventually rise whatever the critics of this asset say. Gold has and always will be a perfect hedge for inflation. It had to have a correction after its monstrous bull run from 2005 till 2011. Its a long term asset to invest in and I would need to make a book one day on the advantages of owning gold.
In other news I have finished with my mid semester exams with credits in Macroeconomic Theory & Principles of Econometrics!