Brokers' Notes: Gold breaches $1400; euro hovers near its December high

Gold
Gold breached above $1,400 for the first time in a week, riding on dollar weakness and buoyed by buying interest from China, but trading volumes remained thin ahead of the year end. Investors are watching the Federal Reserve meeting later today, as well as for signals on monetary policy moves in China, to gauge the health of the world's top two economies. Traders cited buying from Chinese banks behind the strength in the bullion, but said the volume was very light as most funds and traders avoid risks towards the year end. The Federal Reserve policy board meets later Tuesday and is expected to reaffirm its quantitative easing policy even while acknowledging the better run of data recently, just before a European Union summit later this week.

Euro
The euro hovered near its high for December against a broadly weaker US dollar on Tuesday with traders citing solid buying from accounts including Asian central banks that overwhelmed hedge fund selling. The sudden jump triggered a wave of stop-loss buying and forced some traders to lighten their dollar long positions ahead of the Federal Reserve's policy meeting later in the day. Euro could struggle above $1.3400 and resistance ahead of parity to cap the Aussie. Its Dec. 6 high of $1.3452 is also seen as near-term resistance. A break of that level would take it to a three-week high though persistent worries over the debt of peripheral countries in the euro zone means the euro faces an uphill battle to clear that point. Indeed The European Central Bank stepped up its purchases of government bonds last week, although the amount was still well below levels reached last spring.

US dollar
The US dollar's decline also followed an abrupt drop in U.S. Treasury yields and Moody's warning that it could move a step closer to cutting the U.S. triple-A credit rating. Improved appetite for riskier assets on growing optimism about the U.S. economy and China keeping interest rates on hold all conspired to push the greenback down more than 1 percent against a basket of major currencies.

Australian dollar
Commodity currencies shone on record high copper prices and gains in other metals such as gold. The Australian dollar put on nearly 1.5 cents on Monday to come close to testing parity. It was last at $0.9959 near a one-month high of $0.9983 hit on Monday. The Aussie hit NZ$1.3258 for the first time since late 2000, with the kiwi dollar coming under pressure after New Zealand retail sales slumped in October, leading the market to further push out the timing of any hike in interest rates.

Indian rupee
The Indian rupee strengthened to its highest level in nearly a week on Tuesday boosted by gains in other Asian currencies, but choppy domestic shares limited any sharp gains. Indian shares flip flopped on Tuesday, as the ongoing telecom sector probe shadowed firm Asian equities, and investors awaited November inflation data for more cues. India's wholesale price index rose an annual 7.48 percent in November, in line with analysts' forecast, government data showed on Tuesday. The figure was lower than the annual rise of 8.58 percent in October. RBI is likely to hold on their interest rates this week when they meet on Thursday. The benchmark share index is up 12.8 percent so far in 2010, helped by net foreign fund investment of $28.7 billion in Indian equities. The rupee is up 3.4 percent on year. Traders would watch inflows towards an initial public offering by Punjab and Sind Bank that opened on Monday. The bank aims to raise up to 4.8 billion rupees ($106 million)

Oil
Oil prices fell on Tuesday as investors continued to watch for any new monetary policy announcements by China to tame high inflation and ahead of US oil industry stocks data. Data showing higher oil demand in China and the lack of any announcement about an interest rate hike over the weekend continued to provide underlying support. China's inflation rose to a 28-month high of 5.1 percent in the year to November, government data released over the weekend showed. While China did raise cash reserve requirements for banks, it did not move as expected to hike interest rates, which is seen as supportive for commodities. Cold winter weather in the United States and Europe is also seen boosting energy demand. Temperatures trending colder central and eastern areas of Europe over the next few days, moving west by late week with heating energy demand above average. In the U.S. Midwest, temperatures are also expected to be below normal through much of the week.

Source: Richcomm Global Services, DMCC, Dubai; www.richcommglobal.com