With its back against the wall, Cyprus announced a plan to sell EUR400 million worth of gold reserves to finance part of its bailout and avoid bankruptcy. This development comes as the Mediterranean island purportedly requires EUR23 billion, as opposed to the initial estimate of just EUR17 billion to finance its needs. The Cypriot government was left on its own to fund the EUR6 billion gap as other Eurozone member-states have declined to provide more assistance than initially offered.
The sales of Cypriot gold reserves would come in addition to the bank levy directed upon depositors with greater than EUR100,000 placed in Cypriot banks. Cyprus emerged as the very first Eurozone member-state to implement capital controls in order to hinder a bank run.
Gold sellers celebrated this week as the yellow metal plunged $109 after bears successfully contained moves to break back above the $1,600 level. The drop is very crucial as Gold is now trading its lowest since July 2011. Any nudge lower could trigger further decline to 2011’s lows which is situated just above the $1,300 level. Buyers should take every chance to bring price back above $1,500 from this point on.
Parallel to gold’s drop, oil also slid hard on Friday, hitting a $90.26 low which is not far away from 2013’s low in the lower-$89s. Given the price action in gold, it’s certainly possible for oil to test even lower, perhaps toward the November 2012 low around $84. After that, next target is mid-2012 low in the lower-$77s.
EURUSD struggled to break past March highs in the 1.3130s all week. Having said that, price action remains bullish, but an immediate break of the resistance is required to preserve the momentum. Bulls will have to contend with the defense in the 1.3300 next.
This week, USDJPY came as close as 5 pips from hitting the coveted 100 level, yet it surprisingly failed to do so. Stubborn buyers tried all week but they finally yielded on Friday, and this led to giving up 171 pips of gains as price hit 98.08 before the week ended at 98.38. Sellers are now one step closer to filling the gap and testing the 95 level. A horde of eager bulls are expected to show up until price reaches that level.
GBPUSD made modest gains towards the 1.5400 level, but selling pressure just above this level proved unbearable for the late-week buyers. And so, the pair turned back towards the low-1.5300s, trimming the week’s bullish hard work in the process. It’s the bears’ turn to test the defense by the bulls around 1.5300. A break of this level could bring price back in the 1.5000s.
The Week Ahead
On Monday, BOJ chief Kuroda is slated to give a speech in Tokyo. In terms of economic releases, there are Australia’s Home Loans; China’s Retail Sales, Fixed Asset Investment, Industrial Production and GDP; Euro-area Trade Balance; US TIC Long-Term Purchases and Empire State Manufacturing Index.
On Tuesday, the market will witness the release of RBA’s Monetary Policy Meeting Minutes, New Motor Vehicle Sales; Switzerland’s PPI; UK’s CPI, RPI, HPI, and PPI, BOE Inflation Letter; Italy’s Trade Balance; Germany’s ZEW Economic Sentiment; Euro-area CPI and ZEW Economic Sentiment; Canada’s Foreign Securities Purchases and Manufacturing Sales; US CPI, Housing Starts, Capacity Utilization Rate, Industrial Production, and Building Permits. ECB’s Draghi will also give a speech.
On Wednesday, there are reports including New Zealand’s CPI, UK’s Unemployment Rate, Claimant Count Change, and MPC Meeting Minutes; Switzerland’s ZEW Economic Expectations; Canada’s BOC Rate Announcement and Statement, Monetary Policy Report, and Press Conference; US Beige Book.
On Thursday, there are Australia’s NAB Quarterly Business Confidence, Japan’s Trade Balance, UK Retail Sales, US Philly Fed Manufacturing Index and Unemployment Claims. Today is also the first day of the 2-day G-20 meetings.
Finally on Friday, there are news releases such as Euro-area Current Account, Germany’s PPI, Canada’s Wholesale Sales and CPI. Today is also the first day of the 3-day IMF meetings.