Monday, April 21, 2014

Politics and the Forex market | Gold bias is still down but price support exists

Bloomberg and a number of other news outlets are reporting this morning that the Australian government, in the person of Treasurer Joseph Hockey, has effectively criticized the Reserve Bank of Australia (RBA) for not doing more to reduce the value of the Australian dollar on the international Forex markets. The reason for this is that a relatively strong Aussie makes it more difficult for the government to balance the national budget.

Separately, there are long-standing talks taking place between China and Australia on a free trade agreement between the two countries. This took on a more prominent aspect during the recent visit of the Australian Prime Minister, Tony Abbot, to the People’s Republic. Here, expectations of the completion of negotiations on free trade are delayed considerably by the political hot potato that is the purchase of Australian property by wealthy Chinese. On numerous occasions the government has gone so far as to block even the purchase of individual dwelling houses by Chinese nationals in the cities in Australia where this is most sensitive, such as Sydney. A free trade agreement with China would be a major positive for the Aussie dollar, but potential Chinese involvement in property in Oz is likely to put on the brakes here for some time to come.

The Japanese Yen (see weekly chart above) has been looking for direction over an extended period. Now, the outcome of the Trans-Pacific Partnership talks have come into focus, as there is to be a meeting between Barack Obama and the Japanese Prime Minister, Shinzo Abe later this week. The US and Japan are the most important participants in the TPP talks and an good outcome would be expected to be favourable for Japanese shares and therefore provide the impetus for a lift in the USDJPY pair, which has been long-awaited. However, once again, politics rears its ugly head, as a major component of the talks concerns Japanese agriculture, the opening up of which is politically sensitive in that country.

Gold bias is still down but support exists

While the pressure on Gold is still down, and should remain so as long as the tapering of QE in the USA remains a racing certainty, short term support for the precious metal continues to exert influence. The most important fundamental factor is the continuous rumbling of instability in Ukraine and its potential to spill over into international affairs. 

From the Technical Analysis standpoint price is once again approaching an important support level in the 1277 area, and is wresting with the 200 Day Simple Moving Average (SMA) (see chart above).

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