Broker's Notes: Gold declines, as euro rally pauses

Gold

Gold edged lower on Thursday, snapping a three-day winning run as the euro rally paused while investors watch for the key China economic data that might shed light on prospects for future monetary policy changes. New home starts in December fell more than expected to the lowest in more than a year, suggesting the battered housing sector remained a major roadblock to economic recovery. Worries about the euro zone debt crisis have eased, and talk that German officials were drafting contingency plans in case Greece defaults suggested they were working to prevent the crisis from worsening.  Beijing is scheduled to release a suite of data, including economic growth in the fourth quarter and December's inflation later in the day. The economy was expected to have slowed slightly from the previous three months.

Euro

The euro fell on profit taking on Thursday, after having extended its rally to a two-month high above $1.35 overnight, bringing a key technical level in focus that could throw a speed-bump in its path.  Disappointing earnings from Goldman Sachs and weak US housing data hit appetite for riskier assets, knocking 1 percent off the S&P 500 index and giving traders an excuse to book profits on the euro.  On Wednesday the euro had risen to $1.3539, its highest since late November, a breach of that peak would bring resistance near $1.3570 in view, the 50 percent retracement of the euro's November to January slide.   Solid bond auctions in Spain and Portugal have eased worries about the euro zone debt crisis, and talk that German officials were drafting contingency plans in case Greece defaults suggested they were working to prevent the crisis from worsening.

Australian dollar

The Australian dollar briefly pared some of its losses after the official release of Chinese data confirmed that China's consumer inflation eased in December from a 28-month high in November. The consumer inflation data was in line with figures leaked by Hong Kong media on Wednesday. The easing of inflation could help lessen the urgency for further immediate tightening measures by China and help lend support to risk appetite and the Australian dollar. The dollar regained a bit of ground following its broad slide the previous day. It rose 0.2 percent against a basket of currencies to 78.756 pulling away from a two-month low of 78.303 struck on Wednesday.  

Indian rupee

The Indian rupee weakened further on Thursday tracking weak domestic shares as well as losses in Asian peers and the euro against the dollar. Dealers expect mute dollar inflows to also weigh on the rupee during the day. Indian shares fell as much as 0.8 percent so far in trade on Thursday, with financials leading the decline, tracking weak Asian peers. There are not much (US dollar) inflows into India and then we have the monetary policy also coming up next week. So, overall, market is not bullish on rupee. Foreign funds are net sellers of $671.2 million worth of shares in the year to Tuesday after pumping in a record $29.3 billion in 2010.

Oil

Crude futures fell on Thursday, adding to the previous day's 0.7 percent decline amid expectations that crude inventories deliverable for upcoming NYMEX contracts will stay high for a while. US crude oil inventories were forecast to have fallen by 600,000 barrels last week while gasoline and distillate stocks were expected to be higher, according to a Reuters poll. Weekly fuel stock data from the US government is out on Thursday at 11:00 EST (1600 GMT), delayed by one day because of a public holiday on Monday.

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