Gold to test $700 on today’s US CPI data?

Gold to test $700 on today’s US CPI data?

May gold could pony up to 11-month highs on a dollar-bearish CPI. But Kristian Siggaard-Jensen says a stronger-than-expected reading is a signal to play USD/JPY and USD/CHF



FX strategist Kristian Siggaard-Jensen is \"playing the hell\" out of today’s hawkish UK CPI reading via fresh pickups of a classic European carry, GBP/CHF. Meanwhile, the outlook for US CPI today is a slightly less obvious play. While a soft reading will send EUR/USD higher, stronger than expected inflation data i.e., anything above the consensus expectation of 0.2% for core month-on-month, is a signal to buy USD/JPY or USD/CHF. \"Any upward deviation in the core CPI figure is going to be dollar supportive, but don’t expect US economy watchers to feel good about it,\" says Siggaard-Jensen. \"The consensus expectation for core CPI year-on-year has been set pretty high as it is at 2.6%. Fed chairman Ben Bernanke is hoping the monthly core figure will flatten out naturally without intervention. Any pickup in the core reading will deepen the Fed’s dilemma mightily.\"

With that in mind, US and European equities are positioned for a low-range or \"in-line\" CPI reading – our outlook is moderately bullish for US equities following yesterday’s bounce for mortgage-related shares on news of the Sallie Mae – a surprising indicator of defiant optimism among US investors despite news that the number of US homes in foreclosure has doubled since Q1 of last year.

Futures strategist Mårten Alden says May gold contracts look set to test the psychologically key $700 level on today’s CPI reading. \"Yesterday’s session brought a nice break to the upside for gold, so it’s clear that the market is itching to pounce on fresh longs, but will wait for US CPI to make a move,\" says Alden. \"A dollar-bullish CPI reading will take gold prices off a bit to $682. But a break of the $700 mark is significant, not just for the immediate psychological impact, but because it opens up for a technical move toward $730, an 11-month high for gold.\" Elsewhere in the metals complex, Alden is looking to short copper for the short term, with May contacts trading near current support levels within a fairly narrow range and looking weak.