Tensions in France continue. News that two Air France US-Paris flights have been diverted following bomb threats and the police raid in the norther suburb of Saint-Denis keep the atmosphere heavy in Europe. The European equity markets opened in the red. Later in the session, we could expect to see some recovery on the back of a weaker euro alongside with improvement in sentiment. The event risk remains high however, so as the market volatility.
The euro continues its slide against the US dollar and the pound. The single currency extended losses to 1.0631 in Asia. The sentiment remains strongly negative and the mid-term direction points at a further slide to 1.0500/1.0450 zone. Traders remain seller on tops to strengthen their euro short positions before the FOMC minutes release later in the day (1900GMT). Euro-pound hit the 70 cent target.
The FOMC’s October meeting minutes will be under close watch today (1900GMT). A quick glance on the TIPS market tells us that the US monetary conditions have been continuously tightening since April and the market assigns a 66% chance to a December hike in the US. Hence today’s minutes could further support the Fed hawks and perhaps support the US dollar to the end of the year. Although the FOMC refrained from hiking the federal funds rate in October, since the October 28th decision, the USD has gained against all of its major counterparts. The pound lost 0.37%, the yen gave back 1.81% while the euro wrote-off 2.51% against the US dollar.
Overseas, the BoJ begins its two day meeting today and is broadly expected to sit on its hands. The dollar-yen extended gains to 123.49 in New York yesterday. Option orders are mixed at this level for today’s expiry. Fed is all that matters for the gold.
Any belief that gold could provide safety proved unfounded and effectively costly for foolhardy traders who rushed io the gold market on Monday following Paris attacks.
Not only was the rise in gold short-lived, but the yellow metal paid little attention to renewed tensions in France. After hitting a fresh 5-year low in New York yesterday, the gold traded down to $1064.55 for the first time since February 2010. The destiny of gold is firmly in the hands of the Fed, its historical role of safe-haven asset is nothing but secondary.
The USD-bulls dominate before the FOMC minutes. The market will be looking for any hint for a December rate hike. If Fed hawks are satisfied, the way for further south will be wide open for the gold. A hesitant view on December hike could give a bump to the gold market with solid resistance at $1100/$1115 to keep the mid-term target anchored at $1000.