The euro currency hit two-year high of $1.3411 against the dollar – MKS

( – The euro currency hit two-year high of $1.3411 against the dollar last night as Fed left interest rates unchanged, but removed earlier tightening bias in its post-meeting statement. Investors sold the dollar as expectations grew about the likelihood of rate cuts later this year.

Financial futures showed that the chances of the Federal Reserve cutting interest rates by June briefly rose to 48 percent from 24 percent earlier. As the market digested the FOMC news the expectations of a rate cut eased to 38 percent while at the end of Fed’s January meeting the chances of a June cut stood at only 4 percent. As soon as gold usually moves in an opposite direction to the US dollar, the yellow metal rallied in the thin electronic trading. The single currency also got boosted against the dollar due to the prospects of more euro zone interest rate hikes this year from the current 3.75 percent. Firmer oil was an additional supportive factor to the precious metal’s strength after Wednesday’s close. Crude gained $1 abarrel, heading towards $61 as sharp drop in US gasoline inventories raised concerns ahead of the summer driving season in the world’s biggest consumer. Gasoline stocks were dragged to 7 percent below early February levels verses March. The yellow metal climbed over four dollars after the FOMC decision release to open around $664 levels on Tocom.

The whole price action was over by then with spot hardly moving in a narrow two dollar range throughout the Asian session. During the early European hours the market remained stagnant because participants were reluctant to push the dollar further down as Fed did say that inflation was still an area of its main concern. Subsequently prices tried to challenge the upside, but got capped by profit taking around $666 levels, followed by a fix of two dollars below the high on the first London fixing. Despite some of the weak longs being liquidated the yellow metal remained firm and did not retreat below $663. After the opening of the Comex division of the New York Mercantile Exchange the US initial jobless claims came out to be better than anticipated for the week ended on the 17th of March. Claims fell forthe third straight week to its lowest since the week ended February 3. According to the Labor Department there were no special factors behind the decline with the figures pointing at a stable employment. The four-week moving average of claims, which is viewed as a better indicator of the underlying trends, also fell last week. The data release failed to move the market and range trading persisted for the next couple of hours.

Subsequently came the announcement of the US leading indicators which were worse than estimated. Leading indicator is a summery measure designed to signal changes in the direction of the aggregate economic activity. The index measures the average behavior of a group of economic time series thats how similar timing at business cycle turns but represent widely differing activities or sector of the economy. According to the Conference Board, a private and non-profit research and business membership group, the composite index of leading indicators declined 0.5 percent in February with the prior month figure being downwardly revised. The index has been flat or declining in the nine out of the last twelve months. Another attempt to break higher was then made, and the peak extended to $667.30. The ascent was also supported by crude climbing above $62 per barrel. Gold could not hold on to the gains for long though and gave them all away as selling emerged on the second London fixing. Prices fixed on the lows, at $663, up 4.25 dollars from the previous PM. Fed Division of Banking Supervision and Regulation Director Roger Cole said today that “at this time, we are not observing spillover effects from the problems in the subprime market”. He also added that Fed is concerned about the mortgage market, but housing credit deterioration is focused on the narrow subprime sector. Investors can take steps to fortify bad loans if their portfolios contain damaged mortgages. US dollar steadied and precious metal spent the rest of the NY session quietly hovering around the $664 level with an exception of a brief dip down to $662.50. We believe that gold has the potential to trade higher if the $660 level, which has now become a support, manages to hold.

Silver also rallied after Comex close last night, to open ten cents firmer on Tocom. The Far East session was however extremely quiet with the prices remaining bounded by the $13.32-13.43 range. In Europe the $13.40 resistance was fruitlessly challenged many times before it was finally breached during the NY trading hours. Spot rallied, mirroring gold’s ascent, but ran into offers accumulated around $13.50 level. The white metal retreated slightly and spent the rest of the session very quietly fluctuating on the top side of the intraday range. We believe that silverhas the possibility to trade higher with the first resistance represented by the $13.50 level.

MKS Gold & Silver, Daily Report
By Lidia Nazarova


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Marion Mueller

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