Daily Report: EUR/USD, GBP/USD, USD/JPY And XAU/USD : January 02, 2014

The Federal Reserve’s $85 billion in monthly bond purchases, which was the main reason the behind the gold fever from December 2008 to June 2011, will be finally curbed by $10 billion this month.

Gold suffered a rude shock in 2013, with gold losing more than a quarter of its value in the worst annual free-fall over 30 years. However, the prospects for a strong rebound in 2014 are out of the consensus forecast.

Therefore, many analysts expect gold free-fall is not over yet this year, but Chinese demand will probably cushion prices from slamming into much lower grounds. Yet, the bearish outlook for the precious metal remains evident in the meantime.

The momentum sounded more upbeat if we look at stocks; the Dow ended 2013 at a new record high of 16,576. However, Treasuries were badly hit by prospect of Fed tapering, with the 10-year yield nearly doubling from 1.70% to 3.03%.

Technically, the break above $1,220 resistance level might be shortly lived, but we would The U.S. Dollar began 2014 by trading mixed while rising against a few Forex majors. Data published on the last day of the year increased confidence in the markets, especially as it denoted that Americans were feeling more optimistic about the state of their economy. According to the Conference Board, Consumer Confidence rose to 78.1 last month, exceeding forecasts for a reading of 76.0. Furthermore, the Standard & Poor’s/Case-Schiller indicated that home prices across 20 U.S. cities climbed at an annualized rate of 13.6 percent in October, meaning that the prices surged at the fastest rate since February of 2006. But the greenback’s advance was limited as the Chicago Purchasing Manager’s Index showed a decline to 59.1 following November’s 63.0 posting. Still, the numbers were solid enough for speculators to anticipate that the Federal Reserve could continue trimming stimulus over the months to come, while allowing the economy to progress on its own. In the meantime, market traders appeared to be shying away from gold on the last day of 2013, as many anticipated that Gold Futures would trade low while incurring the biggest slump in more than 30 years.

In the Euro region, the headlines showed that Latvia is the latest country to join the Euro bloc despite serious opposition from half of its citizens. The Latvian Prime Minister, Valdis Dombrovskis, has implemented a series of austerity measures, and yet, the citizens believe that by becoming part of the E.U. they’ll see acceleration in inflation even as their consumer prices dipped 0.4 percent in November. Lithuania’s officials stated they hope to be joining the Euro bloc one year from now. The Euro slipped against the U.S. Dollar upon the release of stellar Consumer Confidence reports out of the U.S., but erased some of its losses as European Central Bank President Mario Draghi indicated that the bank’s balance sheet had shrunk in 2013. The British Pound continued to strengthen and traded at over a two-year high versus its U.S. counterpart on speculation that the Bank of England will shift gears and raise the benchmark interest rate earlier than planned.

The Yen dropped the most since 1979 versus the greenback as the Bank of Japan indicated that it will adhere to its unprecedented easing measures to make certain the country wards off the many years of deflation.

Lastly, in the South Pacific, the Australian Dollar recouped some of its losses on December 31st, after it reported that Private Sector Credit showed an advance of 0.3 percent. However, the Aussie dropped again as investors await China to report on the level of activities in its Manufacturing sector. For now, China announced that its debt increased to 2.95 trillion U.S. Dollars, suggesting that the financial system is facing risks as President Xi Jinping introduces the new economic reforms. The nation’s debt climbed 13 percent in the first half of 2013, and China’s borrowing practices reminded economists of the Asian countries which acted in the same manner before entering into periods of crisis in the 1990s.

EUR/USD- Euro Returns Gains
The Euro took back some of its gains as investors locked in their profits at the end of 2013. The currency managed to recoup on comments by European Central Bank President Draghi, in which he stated that the balance sheet shrunk. But the Euro’s advance was limited as economists see the Euro-zone’s economy progressing at a slower rate than that of the United States, a point of view which raised speculation that the ECB will leave the costs of borrowing money at the current lows.to confirm a daily closing above that level.

GBP/USD- U.K. Economy Set To Grow
The British Pound rated as the strongest among ten currencies from developed countries in the last half of 2013, and it rallied against the U.S. Dollar, reaching more than a two-year high on speculation that the U.K.’s economy will remain on the road to recovery. The Sterling’s strength was supported by news that the U.K. experienced a bigger economic expansion than predicted in the third quarter, and in fact revealed that such growth happened at the quickest pace in three years. The announcement fueled speculation that the Bank of England won’t wait for unemployment to dip and may raise the interest rates sooner. Concerns that the British economy could be heading towards a triple-dip recession ebbed months after the U.K. posted the biggest quarterly drop since 2008.

USD/JPY- Japanese Trading Light
Trading in the Forex remained light during the holiday period, yet the Yen hovered near the lowest level since 1979 against the U.S. Dollar, despite the fact that it climbed 21 percent in 2013. According to some analysts, the difference between the monetary policies of the U.S. and Japan has been credited with the Yen’s depreciation, and such divergence could continue to push the Japanese currency further to the downside. The Yen plummeted even as Haruhiko Kuroda, the governor of the Bank of Japan, vowed to fuel economic growth with the country’s unprecedented measures.

XAU/USD- Gold Contracts Reach Six-Month Low
Gold Futures plunged to six-month lows on the last day of 2013, just as investors feared, and posted the largest annual plunge in more than thirty years, as the U.S. economy showed improvement and reduced demand for a wealth shield. Contracts for February delivery settled at $1,202.30 a troy ounce in the afternoon hours of the American trading session, in New York, after they posted at $1,181.40. Furthermore, the data showed that exchange-traded products which are supported by the shiny metal fell 33 percent to the lowest in four years, especially as famous traders such as George Soros and John Paulson sold off stakes in their gold funds.

Today’s Outlook
Today’s economic calendar shows that the Euro region and the U.K. will report on Manufacturing PMI. The U.S. will release data on Initial and Continuing Jobless Claims, ISM Manufacturing PMI, Manufacturing PMI, and Construction Spending. Lastly, Australia will issue an announcement on Commodity Prices.