After last week’s drama from euro zone policy makers, which in the long-run are important steps towards finding a resolution to the crisis, there is plenty of scope for markets to take a step back this week. Currencies and commodities are likely to trade a bit more defensively this week as liquidity starts to dry up ahead of the holidays and as markets continue to digest ongoing news surrounding Europe. The possibility of a ratings downgrades of any of the AAA European countries, together with the potential for soft euro zone economic data, are likely to weigh on the market’s appetite for risk.
Market participants want to see greater liquidity and the ECB to stand up as the buyer of last resort keeping the Euro buoyed and gold prices higher. With inflation expectations declining globally, unless there is substantial liquidity, this is unlikely to occur. In China a deceleration of inflation from 5.5% y/y to 4.2% y/y, the lowest levels since September 2012, is likely to be received as negative for the yellow metal.
Gold prices have remained in a broad range between 1660 and 1800 since declining in late September. A break of the 1660 level will likely lead to a quick test of 1600 and then the resent lows near 1550.
The trade – Purchase a daily binary option put on a daily close below 1660, with a floor at 1630.
Signal Summary
Asset : Gold
The trade : Binary Put Option
Expiry time : End of day
When : on a close below 1660, with a floor at 1630.
The result : In the money
