Weekly Forex Update
During past week, the US Dollar ticked higher against its key peers, as another set of macroeconomic data pointed towards economic optimism in the US.
The Federal Reserve’s (Fed) Beige Book revealed that the US economy showed signs of healthy growth in the final months of 2013, mainly on the back of increased consumer spending, factory output and increased employment. The retail sales in the US rose more than market expectations in December. The consumer price inflation inched nearer to the target set by the central bank in the similar period. The weekly initial jobless data dropped more than market expectations for the week ended January 11. However, the University of Michigan Consumer Sentiment index experienced a drop in January.
Separately, the Fed’s outgoing Chairman, Ben Bernanke, backed the aptness of the ultra loose monetary policy to tackle the mighty recession of 2008. The Fed’s Dallas President, Richard Fisher, reiterated his previous view that the central bank could had tapered its bond purchases up to $ 20 billion. Meanwhile, Fed’s Philadelphia President stated that the central bank should seek total exit from its accommodative stance by the end of the year.
The Euro slipped against the greenback, as the European Central Bank’s (ECB) monthly report stated that lower interest rates still remains essential for the growth of the bloc. Also, a slower rise in the Euro-zone’s inflation data, cemented the central bank’s previous views of low inflationary pressure in the Euro region.
Meanwhile in the UK, a slower than expected rise in domestic inflation data increased expectations that the Bank of England (BoE) might need to postpone the decision to lift the interest rates. However, the spectacular rise in the nation’s retail sales data snapped the weekly losses in the Sterling.
The Bank of Japan’s (BoJ) Governor, Haruhiko Kuroda, voiced not to expect any reduction in the massive monetary stimulus until the nation does not hit the 2% inflation target. Market participants would now gear-up for the central bank’s first policy meeting for the year later during the week.
During the last week, the Swiss Franc traded in the red against the greenback. The Swiss National Bank’s (SNB) Chief, Thomas Jordan, reiterated the necessity of the CHF ceiling against the EUR, citing the low inflation levels.
Meanwhile, the Aussie lost ground after the jobs report showed a significant decline in the nation’s hiring. Elsewhere in China, reports released yesterday indicated that the gross domestic product, retail sales and industrial production rose at a slower pace, highlighting the economical slowdown in the second largest economy.
EUR USD
Last week, the EUR traded 1.08% lower against the USD and closed at 1.3525, after the ECB’s monthly report reiterated the necessity of lower interest rates in the common currency bloc. It also cautioned that money market rates might still remain volatile in the near future. Moreover, investors also reacted to the slower growth of the German economy. In other economic news, the final consumer prices in Germany and Euro-zone rose in line with market expectations in December. Additionally, the Euro-zone’s industrial production rebounded at quicker pace in November. Also trade surplus in the bloc widened in November, while the construction output improved in the similar period. In a noteworthy development, Moody’s rating agency upgraded its sovereign credit rating on Ireland to “Baa3”, with a “positive” outlook. Meanwhile, the Standard & Poor’s rating agency revised its outlook for Portugal to “Negative”. During the week, the pair traded at a high of 1.3700 and a low of 1.3516. The pair is expected to find its first support at 1.3461, with the next support expected at 1.3396. The first resistance is at 1.3645, and the next at 1.3764.
The ZEW statistics from the Euro-zone and Germany would remain on the radar of the market participants during the week. Also, the preliminary readings in the bloc’s manufacturing activity data would help in the evaluating the economic health of the Euro-zone.
GBP USD
In the last week, GBP traded 0.39% lower against the USD and closed at 1.6409, as slower rise in the nation’s inflation data for the third straight month tilted the scale towards the continuation of the lower interest rates for a prolonged period by the Bank of England. However, a better than expected rise in the retail sales data in the UK during the festive season provided some relief to the downfall in the Sterling. Also, the Conference Board’s leading economic index picked up in November. Separately, one of the BoE key official voiced that real wages in the UK are expected to rise. The pair traded at a high of 1.6510 and a low of 1.6308 in the previous week. GBPUSD is expected to find its first support at 1.6308, with the next at 1.6207. Resistance exists first at 1.6510, and then at 1.6611.
The Bank of England is expected to release its latest meeting’s minutes which would provide the voting pattern of the policymakers in determining the interest rate and the size of the asset purchase. The release of the claimant count and unemployment rate data in the UK would also attract market attention.
USD JPY
The USD traded 0.29% higher against the JPY over the past week, closing at 104.31, amid escalating economic optimism in the world’s largest economy. During the week, the BoJ’s Governor, Haruhiko Kuroda, noted that the central bank would not stop its aggressive easing policy as long the nation does not reaches its inflation target. In economic news, Japanese trade deficit widened in November. Machine tool and machinery orders surged in Japan. Meanwhile, consumer confidence and Eco watchers outlook in Japan deteriorated in December. The pair traded at a high of 104.94 and a low of 102.85. The pair is expected to find its first support at 103.13, with the next support expected at 101.94. The first resistance is at 105.22, and the next at 106.12.
The Bank of Japan’s policy meeting would remain the key event during this week for the Yen traders.
USD CHF
The USD traded 1.09% higher against the CHF and closed at 0.9119 in the last week. The SNB’s Chairman, Thomas Jordan, voiced that the currency ceiling of the Swiss Franc against the Euro is expected to remain for a foreseeable future, citing the low inflation levels in the nation. Retail sales in Switzerland rose 4.2% in November. Meanwhile, producer and import prices remained steady in December. During the period, the pair traded at a high of 0.9110 and a low of 0.8985. The first support is at 0.8991, and the next at 0.8925. Resistance exists first at 0.9116, and then at 0.9175.
The Swiss National Bank’s monthly statistical bulletin and the nation’s ZEW survey and trade report are the major macroeconomic triggers from Switzerland set to release ahead in the week.
USD CAD
Last week, the USD traded 0.74% higher against the CAD and closed at 1.0972, as economic data released last week from the US reinforced the view that the economic recovery is gaining enough traction in the nation for the Federal Reserve to continue tapering stimulus measures. Meanwhile, the Loonie came under pressured, amid expectations that the Bank of Canada (BoC) will stick to its dovish stance on rates at its upcoming policy meeting after a recent series of weak economic data sparked doubts over the economic outlook. Data released last week indicated that existing home sales in Canada dropped further in December, raising the speculation that nation’s housing sector is likely headed for more moderate activity in 2014. Meanwhile, the BoC’s business outlook survey noted the optimism among the nation’s businesses, amid recent economic developments in its major trading partner, US. USDCAD traded at a high of 1.0993 and a low of 1.0841 in the previous week. The first support is at 1.0878, with the next at 1.0783. The first resistance is at 1.1030, while the next is at 1.1087.
The highly awaited interest rate decision and the accompanying press conference by the Canadian central bank Governor, Stephen Poloz will be in focus tomorrow, while the nation’s inflation data for December is also expected to generate market interest.
AUD USD
AUD traded 2.39% lower against the USD last week, and closed at 0.8774, as bigger than expected drop in the nation’s jobs report in December, signaled the continuous slowdown in the economic activities in the island nation. Moreover, the jobless rate remained unchanged in the similar period. In other economic news, home loans in the nation rose in line with market expectations in November. During the week, the pair traded at a high of 0.9088 and a low of 0.8762. The first support is at 0.8661, and the next at 0.8549. The first resistance is at 0.8987, and the next at 0.9201.
The Australian consumer price data and consumer confidence is the couple of major macroeconomic updates that would be tracked by traders ahead in the week. Also, the trend in the AUD would take cues from the outcome of macroeconomic data from China.
Gold
In the prior week, Gold traded 0.58% higher against the USD and closed at USD1253.45, as robust physical demand in China ahead of the Lunar New Year aided gold prices. However, the gains in the yellow metal were limited, as a series of positive data provided a boost to the risk appetite. Additionally, the Fed’s Beige Book gave bullish views for the US economy. Also, hawkish views from the Fed’s key policy makers kept the greenback supported. However, traders remained reluctant to take big positions in the yellow metal a week ahead of a US Federal Reserve policy meeting, when it could announce another cut to its bond-buying stimulus. The yellow metal traded at a high of 1257.00 and a low of 1234.38 in the previous week. Gold is expected to find support at 1239.55 and the next at 1225.66. The first resistance is at 1262.17, while the next is at 1270.90.
The Fed's Federal Open Market Committee (FOMC) meets on January 28-29. The Fed stated in December that it would trim its monthly asset purchases by $10 billion to a total of $75 billion per month from January. Traders focal point remains whether the Fed would reduce $10 billion at every meeting, or whether they will wait and see for a while.
Crude Oil
Oil prices traded 1.38% higher against the USD in the last week and closed at USD94.07, as global growth optimism increased the demand for the commodity, after the two of the leading world’s leading international bodies, the World Bank and the International Monetary Fund, lifted their growth outlook for the global economy. Also, a series of positive macroeconomic data from the crude oil’s biggest consumer, US, kept the crude oil prices higher. Additionally, the leading oil watchdogs, the American Petroleum Institute and Energy Information Administration, reported yet another weekly drop in the US crude oil stockpiles. Oil traded at a high of 94.94 and a low of 91.43 in the previous week. Oil has its first major support at 92.02, while the next support exists at 89.97. The first resistance is at 95.53, and the next at 96.99.
Crude oil investors would monitor how Iran goes about with its commitment to cease its nuclear programme starting from this week, in determining the trend in the commodity. Also, the global macroeconomic data points would remain a key catalyst in this week’s market action.
Happy pips.
