EUR/USD Fundamental Analysis November 25, 2014 Forecast

The EUR/USD gained a few points in a quiet day of trading with no data on the calendar. The euro recovered from harsh losses on Friday after comments from ECB Draghi. Markets are now waiting for next week’s ECB meeting. China’s central bank is ready to cut interest rates again and loosen lending restrictions due to concerns over deflation, a senior economist at a government think-thank said today, adding that the People’s Bank of China had shifted its focus towards broad-based stimulus.

Fitch Ratings affirmed on Friday Greece’s rating at B and maintained its stable outlook, citing the remarkable budgetary adjustment in recent years. Fitch expects the current loan review to be concluded by end-2014, but is sees some risk that it may slip into early 2015.

Draghi emphasized the risk that low inflation starts percolating through the economy (economic situation and inflation outlook) and stressed his willingness to do more of needed. “We would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases”. The Bund moved higher, while 10-yr yield spreads versus Germany narrowed modestly. The move on bond markets was relatively small compared with the losses for the euro and the gains for stocks.

ECB Vice-President Constancio said this weekend that the ECB will assess its stimulus programs in the first quarter of next year. “And in Q1 2015, we have to assess if indeed the programs are contributing to a pace of increase of our balance sheet that is compatible with the sort of expectation that we have for those programs. And if not, then we have to consider other options.” Recent dovish comments by other ECB members, including Draghi, raised market bets that the ECB could already ease further in December.

Gold Fundamental Analysis November 25, 2014 Forecast

Gold is moving between gains and losses down $1.60 at this writing, trading at 1196.80 as traders remain undecided if central bank purchases will be enough to increase demand while ETF continue to sell off the commodity. The surprising interest rate cut in China helped support gold over the near term. Hedge funds added bullish gold wagers at the fastest pace since June as central bank action from China to Japan and Europe helped stem the rout in prices.  Prices touched a three-week high Nov. 21 after China lowered its key interest rate for the first time since July 2012. The European Central Bank and Bank of Japan also added stimulus to shore up expansion. Gold dropped on Nov. 7 to the lowest level since 2010 as a strengthening U.S. economy and dollar fueled bets the Federal Reserve is moving closer to raising borrowing costs.

Gold surged 70 percent from December 2008 to June 2011 as central banks increased money supplies on an unprecedented scale, spurring concerns that the pace of inflation would accelerate. The precious metal tumbled 28 percent in 2013, the most in three decades, after some investors lost faith in bullion as a store of value.

Holdings in global exchange-traded funds backed by bullion are at the lowest since 2009 after dropping for five consecutive weeks. Prices fell 14 percent from this year’s high in March as a strengthening U.S. economy drove the dollar to its strongest in five years.

USD/CAD Fundamental Analysis November 25, 2014 Forecast

The USD/CAD gained 2 points to trade at 1.1235 as the currency seems to have low volume or interest in today’s session. The US dollar remains strong while a blip up in oil prices is helping to support the currency. The greenback rose to its highest level in more than four years Friday, boosted by the euro’s declines, as the European Central Bank’s decision to begin buying asset-backed securities weakened investor confidence in the shared currency.

The Canadian dollar climbed to the highest level this month after inflation rose faster than all economists’ forecasts in October; boosting speculation the Bank of Canada will signal it’s closer to raising interest rates.

The currency jumped the most in almost two months as the consumer price index increased 2.4 percent compared with the same month a year earlier, following the September pace of 2 percent, Statistics Canada said from Ottawa. The central bank meets Dec. 3 after leaving its benchmark lending rate at 1 percent last month. Canada’s dollar advanced earlier with global stocks and commodities after China cut interest rates for the first time since 2012.

The loonie extended gains as core inflation rate, which excludes eight volatile products, accelerated to 2.3 percent, the fastest since February 2012.

Metals Pack Fundamental Analysis November 25, 2014 Forecast – Silver & Copper

Silver is trading at 16.41 down 49 points while Copper is down 4 points at 3.026. The interest rate decrease from China does not seem to be sparking the metals markets as expected. The daily inventory data released by the London Metal Exchange (LME) today showed a rise in the inventory levels of Copper and Nickel. Meanwhile, the inventory levels of Aluminium, Zinc, and Lead declined.

Aluminium inventory decreased by 5875 tonnes today, while Nickel inventory increased by 2466 tonnes. Copper inventory rose by 1025 tonnes, while Zinc inventory and Lead inventory declined by 2775 tonnes and 50 tonnes respectively. Copper prices on the London Metal Exchange eased back on Monday November 24 on concerns over demand from the world’s top metal consumer following China’s central bank interest rate cut last Friday.

Analysts attributed last week’s rise in copper futures to a firm global trend after China’s unexpected cut in interest rates spur demand for industrial metals. China is the biggest consumer of base metals worldwide.

Exports from Chinese smelters were estimated near 1 million tonnes for 2014 to buyers abroad and in China, traders and sources in smelters said. The bulk had been delivered to bonded warehouses in the country as requested by some clients who traded bonded stocks or re-imported the metal for higher margins.

Those exports typically are not reflected in customs data until the metal is shipped out of China, the world’s top consumer and producer of refined copper.

GBP/USD Fundamental Analysis November 25, 2014 Forecast

The GBP/USD is trading at 1.5643 down by 14 points as the US dollar remains strong and comments from the UK finance ministry and the Bank of England that the stress from the eurozone could weigh on the UK economic recovery.  Sterling is to climb relentlessly against the euro over the next three years and will reach levels last seen at the turn of the century, according to new forecasts by Goldman Sachs.

The US investment bank said the dollar will rise even faster as the American economy powers ahead and interest rates rise steeply, touching parity against the euro and climbing to 140 Japanese yen. The Brazilian real will tumble to 3.10 as the commodity boom continues to deflate.

Goldman Sachs said the European Central Bank is still reluctant to buy sovereign bonds and launch full-blown quantitative easing but is likely to act more aggressively than markets expect when it finally does.

The GPBP continued to move lower after anti-EU party UKIP took a second parliamentary seat from Prime Minister David Cameron’s Conservatives, a harbinger of growing political risk ahead of next May’s general election.

Dealers played down any major impact from the vote in a constituency just south of London, but said concerns about the political outlook were clearly one of the factors behind a continuing downbeat tone on sterling

EUR/GBP Fundamental Analysis November 25, 2014 Forecast

The EUR/GBP added 17 points to trade at 0.7932 as the euro recovered after sharp declines on Friday. The pound continued to ease for no specific reasons. Traders remain worried about the overall UK economic recovery was the eurozone weighs on it heavily.  The eco calendar is thin with only the German IFO business climate indicator and some second-tier data in the US. ECB’s Nowotny, Coeure and Weidmann are scheduled to speak and the ECB will announce the amount of covered bond purchases.

Last week traders considered the rebound of sterling after the BoE minutes as slightly disappointing. This price pattern was confirmed after Thursday’s strong UK retail sales.

Today, the focus will be on the IFO business climate. The index is trapped in a negative spiral. The consensus expects a small further decline for the headline measure, but a limited improvement for the expectations component. After the poor German PMI, such an outcome is more or less the best one can hope for. The risks are probably to the downside.

AUD/USD Fundamental Analysis November 25, 2014 Forecast

The AUD/USD gained 19 points showing strength ever since the PBOC dropped interest rates. Last Friday it unexpectedly announced a 40-basis-point cut in its one-year lending rate to 5.6 per cent. The move both surprised and delighted the market. It’s worth noting that the Chinese central bank had been extremely reluctant over the past two years to cut its official rate. Instead, it’s tried a range of unconventional measures to lower the cost of funding for the country’s struggling small- and medium-sized companies, including a medium-term lending facility, a standing lending facility and a pledged supplementary lending tool. The central bank, which is one of China’s leading reformist institutions, is trying to combat the scourge of soaring debt levels.

The strength of the Aussie showed no reaction to morning news that the price of iron ore has sunk below $US70 a tonne for the first time since the middle of 2009 as investors continue to fret about the imbalance of supply and demand. At the end of the offshore session on Friday, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US69.80 a tonne, down 0.3 per cent from its previous close of $US70 a tonne.