The Japanese yen Gold 6/23

The Japanese yen is firm on Monday, as the pair trades in the low-101 range. On the weekend, BOJ Governor Haruhiko Kuroda said that that the central bank’s monetary stance had led to economic growth but inflation remained below target. Japanese Flash Manufacturing PMI improved in May, pushing above the 50 line which separates between expansion and contraction. In the US, today’s highlight is Existing Home Sales.
Speaking at the International Economic Association in Jordan on Sunday, BOJ Governor Kuroda sounded upbeat about the Bank’s quantitative and qualitative easing policy, introduced in April 2013. Kuroda noted that growth had improved and deflation curbed, but that inflation was around 1%, well short of the target of 2%. The BOJ had hoped to reach its inflation target by 2015, but Kuroda acknowledged that this goal would take longer, and BOJ would continue its current stance of large-scale monetary easing.
Gold is stable on Monday, following sharp gains last week, when the metal gained about 2.8% against the dollar. The metal remains above the $1300 level as the fighting in Iraq continues. On the release front, today’s highlight is US Existing Home Sales, a key event.
The fighting in Iraq continues, as militants linked to al-Qaeda have overrun the north of the country. The insurgents are only about 60 kilometers from the capital of Baghdad, and the situation has quickly escalated into a major crisis for both the Iraqi and US governments. Over the weekend, US President Barack Obama said the crisis could spread to other countries in the region. The turmoil in Iraq, a large oil producer, has pushed the price of gold above the $1300 level, as the metal is considered a hedge during periods of geopolitical instability.

Gold prices Crude oil

Gold prices not straying far from unchanged levels in early U.S. trading Friday. Prices did poke to a nine-week high overnight. Traders are taking a breather after Thursday price action that saw gold gain nearly $50.00 and silver add over $1.00 in value. It been a very good week for the gold and silver market bulls, and they still have technical momentum on their side. August Comex gold was last down $1.00 at $1,313.00 an ounce. Spot gold was last quoted down $7.40 at $1,313.50. July Comex silver last traded up $0.107 at $20.76 an ounce.
Crude oil prices have rallied sharply recently on worries about Iraqi crude oil exports being reduced, and on concerns the violence in Iraq could spread to other Arab nations. The U.S. dollar index hit a four-week low Thursday in the wake of dovishly construed U.S. monetary policy comments from Fed Chair Janet Yellen on Wednesday. These two key outside markets are in a near-term bullish posture for the precious metals and other raw commodity markets.

GBP/USD 6/20

GBP/USD is showing little activity  as the pair continues to trade in the mid-1.70 range late in the European session. On the release front, British Public Sector Net Borrowing hit a six-month high, as the deficit swelled in May. In the US, markets are open on Friday, but there are no US economic releases on the calendar, so we can expect thin trading of GBP/USD. The British pound pushed above the key 1.70 level on Thursday, gaining on strong UK manufacturing numbers. CBI Industrial Order Expectations jumped to 11 points, easily beating the forecast of 3 points. It was the indicator’s best showing since last November, and points to more robust UK manufacturing sector. Retail Sales, the primary gauge of consumer spending, was unable to keep pace. The indicator came in with a weak reading of -0.5%, its first decline since January. The pound managed to shrug off this poor reading since it matched the forecast.

Dollar Index Trading

The dollar index is much like any stock market index and is conceived from a group of currencies valued against the dollar itself in a price weighted format. The forex currencies involved are the Euro,  British Pound,  Japanese Yen, Swedish Krona, Canadian Dollar and the Swiss Franc. However there were far more currencies in the European Union before the establishment of the Euro single currency, the Euro carries the greatest price weighting in the dollar index which is understood by traders, which is 57.6% of the entire index with 13.6% to the Yen, 11.9% to the Pound, 9.1% to the Canadian Dollar, 4.2 to the Krona and 3.6% to the Swiss Franc.
The contract is called  the Dollar Index Futures and the trading symbol is DX. The contract itself trades on ICE exchange Intercontinental Exchange and is valued at any given time as shown: $1000 x The Index Value.  This would be an example if the DX was trading at 80.89, this would make the value of 1 contract to be $80,809. The margin required to trade this product on ICE, is set by the exchange itself and at the present time $880 per contract, this will give traders some leverage to trade with.  A single tick up or down is worth $5.00 profit or loss.

Dollar Index Trading

Gold and silver

Gold and silver also got a boost from continued violence in Iraq, as well as rising tensions between Ukraine and Russia. Workers at Iraq's largest refinery said Thursday that rebels had taken over most of the facility, in what has become a test of Baghdad's ability to protect a pillar of the country's oil-rich economy from a Sunni Muslim insurgency. In Ukraine, a NATO official said the alliance is seeing a buildup of Russian troops near the country's border, describing the development as a "very regrettable step backwards." Some investors buy gold in times of economic or geopolitical uncertainty, believing the metal will hold its value better than other assets.

The Federal Reserve

The Federal Reserve continued to trim its QE program, reducing the scheme by $10 billion, to $35 billion/month. If all goes as planned, the Fed could wind up QE in the fall. The Fed also hinted that interest rates will continue to stay low for the foreseeable future, which likely means that we won’t see any rate hikes before the first quarter of 2015. With regard to economic activity, the Fed noted that the recovery is continuing, but it reduced its forecast of economic growth to 2.1-2.3%, down from an earlier forecast of around 2.9 percent. The bottom line? There were no dramatic items in the Fed statement, with one analyst describing current Fed policy as “steady as she goes”.On the inflation front, CPI moved up modestly, posting a gain of 0.3%. This was the strongest gain we’ve seen since January 2013. CPI followed suit, climbing to an eleven-month high. The index rose to 0.4%, beating the estimate of 0.2%. The Fed policy statement took note of the weak inflation levels, which are nowhere near the Fed’s target of 2%.

Major currencies

The major currencies are in a holding pattern on Wednesday, ahead of today’s US Federal Reserve’s policy statement. USD/JPY is no exception, trading at the low-102 range. In economic news, the Bank of  Japan released its monetary policy meeting minutes. Japanese Current Account remained steady in May, easily beating the estimate. In the US, the Fed is in the spotlight, with a policy statement and a follow-up press conference. There are no Japanese releases on Wednesday.
All eyes are on the Federal Reserve on Wednesday, as the US central bank will release a policy statement later in the day. The Fed is expected to trim its QE program by another $10 billion, which would reduce the asset purchase scheme to $35 billion/month. The big question is when the Fed will raise interest rates, but Fed chair Janet Yellen is unlikely to shed much light on that issue. If, as expected, QE is wound up in 2014, we could see a rate hike in the first half of 2015. However, cuts to QE are dependent on the health of the US economy, which continues to move in the right direction, despite some bumps in the road.