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An alternative strategy could be to wait for break of 1308.00 – the 200-day simple moving average – where we suspect renewed hedge fund interest will emerge considering that positioning is at ten month low at present.

Management and risk description

1. If Spain also becomes an issue we will see contagion which should leave gold the only real safe haven at a time when a flood of data is providing more and more confirmation of an economic slowdown (China RRR cut, Credit Impulse, Monetary Aggregates, central bank balances).

2. Italy is a slow burning fuse which will continue to play a role with Iran and Turkey joining the cocktail of uncertainty.

3. US data has been very poor of late (plus our expected incoming slowdown).

4. We think cycle top is in for US Treasury yields. Fed Bullard’s 1st sign and how the position shift hurt old timers like Bill Gross indicates that more pain is coming

Focus this afternoon will move to Spain and the debate prior to Friday's no-confidence vote in Prime Minister Mariano Rajoy. The market will also be looking ahead to the US non-farm payrolls tomorrow.

The vote will again depend on the Basque Nationalist's five votes, and after the “surprising support” for the budget last week (which was given after getting concessions on pensions) it’s very much up in the air.

The FT says there is political agreement to oust Rajoy, but little consensus as to how.

Parameters

Entry: 1305

Stop: 1280

Target: 1365, then 1400

Time horizon: Short to medium term