Weekly Forex Update
The greenback finished higher against a basket of major currencies, as flow of mostly positive economic data from the US continue to boost demand for the local currency. The USD also rose on safe haven appeal, amid geopolitical tensions in Ukraine and Hong Kong, concerns over global growth and rising expectations that the US Federal Reserve will raise interest rates earlier than expected.
US trade deficit unexpectedly narrowed in August as the exports rose by slightly more than the imports. The US non-farm payroll employment jumped by 248,000 jobs in September following an upwardly revised increase of 180,000 jobs in August. Also, unemployment rate in the US fell to its lowest level in over six years in September. The initial claims for unemployment benefits unexpectedly declined in the week ended September 27. The ISM services PMI showed a modest slowdown in the pace of growth in the sector in September. Factory orders data disappointed, as orders pulled back by more than expected in August. The US consumer confidence fell from 7-year highs in September.
Dismal economic data from the Eurozone and Germany played on traders mind as the Euro declined sharply against the greenback in last week’s trading session. Meanwhile, the European Central Bank (ECB) President, Mario Draghi in an effort to boost inflation and economic growth in the region, stated at its post policy-decision press conference that the central bank would start purchasing covered bonds and asset-backed securities and that the programme would last for at least two years.
The Pound that began the week above 1.62 mark against the US Dollar came under heavy selling pressures to finish at 1.5973, as a series of disappointing domestic data weighed heavily on the local currency. The manufacturing and services PMI in the UK unexpectedly weakened for September, raising doubts over a steady recovery in the nation. Also, UK consumer confidence, mortgage approvals and current account deficit data disappointed Sterling traders. The GBP also declined following a downbeat comments by the Bank of England policy maker, Ben Broadbent.
The Canadian Dollar failed to record gains against the USD, amid a weak global crude oil prices, Canada’s biggest export item. Additionally, downbeat domestic economic data released during last week kept the Canadian Dollar under further pressure. Data showed that the nation’s GDP stagnated for July, while manufacturing activity growth slowed in September. Furthermore, nation posted a trade deficit in August.
Crude oil prices plummeted, as the greenback surged on better than expected US employment data and amid ongoing concerns over abundant global oil supplies and weak demand.
EUR USD
Last week, the EUR traded 1.32% lower against the USD and closed at 1.2516, following disappointing economic data from the Eurozone. The annual consumer price inflation in the bloc fell in September, in line with market expectations. However, the core inflation declined surprisingly, stoking prospects of deflationary pressures in the region. Additionally, various confidence surveys in Eurozone revealed a dismal picture in September, highlighting concerns over the weak domestic confidence. The Eurozone manufacturing activity moved closer to stagnation in September, while the German factory sector contracted for the first time in 15 months. However, retail sales in Germany and the Eurozone rebounded in August. Meanwhile, at its policy meeting the ECB maintained its key interest rates unchanged at a record low at 0.05%, after reducing them unexpectedly last month. The central bank also kept its deposit rate at -0.20% and the marginal lending rate was maintained at 0.30%, in line with market expectations. During the week, the pair traded at a high of 1.2716 and a low of 1.2500. The pair is expected to find its first support at 1.2439, with the next support expected at 1.2361. The first resistance is at 1.2655, and the next at 1.2793.
Ahead this week, the EUR traders will keep an eye on the German inflation, factory orders, industrial production and trade data. Also the ECB’s monthly report would hold key in understanding central bank’s analysis of the prevailing economic situation and the risks to price stability in the region.
GBP USD
In the last week, GBP traded 1.70% lower against the USD and closed at 1.5973. In economic news, UK’s service sector activity slowed more than anticipated in September, while manufacturing PMI unexpectedly weakened. Labor productivity in the UK remained flat in the second quarter. The number of mortgage approvals declined more than expected in August. A separate report revealed that current account deficit in the UK widened unexpectedly in the second quarter. However, the final GDP reading showed that the nation’s economy expanded in the second quarter, in line with market estimates. Meanwhile, downbeat comments by the BoE official, Ben Broadbent that the UK’s economy is not strong enough to call for an increase in interest rates soon, also proved dampener for the local Pound. The pair traded at a high of 1.6288 and a low of 1.5952 in the previous week. GBPUSD is expected to find its first support at 1.5854, with the next at 1.5735. Resistance exists first at 1.6190, and then at 1.6407.
In the week ahead, market participants would keep a tab on industrial, manufacturing, trade and NIESR GDP estimate data in the UK. Moreover, the BoE’s policy meeting would also generate market interest.
USD JPY
The USD traded 0.43% higher against the JPY over the past week, closing at 109.76, after the latest employment report revealed that the US economy added more jobs than expected, fuelling expectations for an early rise in interest rates. In Japan, services sector activity swung back to expansion in September, as the services PMI rose to a reading of 52.5 from 49.9 in the previous month. The latest survey from Markit Economics revealed that Japan's manufacturing sector activity slowed in September but remained in expansion territory with a PMI score of 51.7. Meanwhile, in its quarterly Tankan business survey, the Bank of Japan reported that the business sentiment index in Japan showed mild upside in the third quarter of 2014. Housing starts in Japan declined at a slower rate in August, while industrial production dropped more than expected. The pair traded at a high of 110.10 and a low of 108.01. The pair is expected to find its first support at 108.48, with the next support expected at 107.19. The first resistance is at 110.57, and the next at 111.38.
The JPY is expected to take further cues from the BoJ latest policy meeting decision. Traders would also keep an eye on the Japanese economic data ahead this week.
USD CHF
USD traded 1.69% higher against the CHF and closed at 0.9675 in the last week, as robust jobs report in the US raised speculations that the Federal Reserve will raise interest rates sooner than expected. In economic news, Switzerland's manufacturing output slipped to its lowest level in nearly a year-and-a-half, as the SVME manufacturing index fell to a reading of 50.4 in September from a reading of 52.9 in August, indicating that the demand for the country's industrial goods is waning as growth slows in Europe, its main export market. Moreover, the KOF economic barometer, which indicates to the performance of the Swiss economy in next six months' time, fell to 99.1 in September from a revised reading of 99.6 in August. During the period, the pair traded at a high of 0.9684 and a low of 0.9488. The first support is at 0.9547, and the next at 0.9420. Resistance exists first at 0.9743, and then at 0.9812.
In this week, the Swiss unemployment rate, inflation and retail sales data will attract considerable market attention.
USD CAD
Last week, the USD traded 0.81% higher against the CAD and closed at 1.1244, boosted by a stronger than expected US jobs report and unexpectedly weak Canadian data. The Canadian Dollar fell as data revealed that economic growth in Canada paused in July following a consecutive rise in last six months, as uptick in manufacturing and the public sector was offset by a slowdown in mining and energy sector. The RBC manufacturing PMI moderated to 53.5 in September from a nine-month high of 54.8 in August. Moreover, data released on Friday indicated that Canada unexpectedly posted a trade deficit in August, as imports rose by the most in nearly two years, while exports slowed. The commodity-sensitive Canadian Dollar also came under pressure on weaker oil and metal prices. USDCAD traded at a high of 1.1272 and a low of 1.1070 in the previous week. The first support is at 1.1119, with the next at 1.0993. The first resistance is at 1.1321, while the next is at 1.1397.
Apart from the Canadian employment, housing and manufacturing data, traders will keep a tab on the Bank of Canada’s third quarter business outlook survey report ahead this week.
AUD USD
AUD traded 1.03% lower against the USD last week, and closed at 0.8675. On the economic front, Australia's manufacturing sector activity further contracted in September, while services PMI contracted at a faster rate. The Australian Bureau of Statistics reported that the merchandise trade deficit in Australia stood at A$787 million in August. Meanwhile, retail sales in Australia added a seasonally adjusted 0.1% in August at A$23.31 billion. Building approvals in Australia rose a seasonally adjusted 3.0% in August. During the week, the pair traded at a high of 0.8829 and a low of 0.8642. The first support is at 0.8602, and the next at 0.8528. The first resistance is at 0.8789, and the next at 0.8902.
In the week ahead, investors have their plate full with a raft of economic data in Australia including employment and Westpac’s consumer confidence data. Moreover, RBA’s monetary policy meeting will be closely scrutinized for further movements in the AUD.
Gold
In the prior week, Gold traded 1.85% lower against the USD and closed at USD1192.90, as the greenback strengthened following upbeat US jobs data released last week adding to speculations that the Fed would raise interest rates sooner than expectations. Non-farm payrolls data released on Friday revealed that the employment rose by 248,000 jobs in September, more than market expectations of 215,000. The unemployment rate fell to 5.9% in September from 6.1% in August. Market had expected unemployment rate to remain steady at 6.1%. However, losses were limited, as pro-democracy protests in Hong Kong bolstered safe haven demand for the precious metal. The yellow metal traded at a high of 1224.00 and a low of 1190.30 in the previous week. Gold is expected to find support at 1180.80 and the next at 1168.70. The first resistance is at 1214.50, while the next is at 1236.10.
In the week ahead, traders will closely scrutinize the Federal Reserve meeting minutes and the US economic data, while China’s third quarter GDP data will also remain in focus.
Crude Oil
Oil prices plunged 4.06% against the USD in the last week and closed at USD89.74, The US West Texas Intermediate (WTI) crude oil plunged below the $90-dollar mark, slipping 4.06% to close at USD89.74, on the back of stronger dollar and amid signs that supplies from Russia, Saudi Arabia and the US are outstripping demand. Moreover, oil prices also fell amid speculation that the Organization of Petroleum Exporting Countries (OPEC) would not trim its production to reduce oversupply. However, losses were capped as the Energy Information Administration reported that the US crude oil inventories fell by 1.4 million barrels to 356.6 million barrels in the week ended September 26, against an expected increase of 0.7 million barrels. Moreover, the American Petroleum Institute reported a drop of 0.5 million barrels in the US crude inventories for the similar period. Oil traded at a high of 94.90 and a low of 88.18 in the previous week. Oil has its first major support at 86.98, while the next support exists at 84.22. The first resistance is at 93.70, and the next at 97.66.
Ahead this week, oil traders would focus on the Fed’s meeting minutes for further indications on the future possible direction of US monetary policy. Investors would also keep a tab on further developments in Hong Kong, Eastern Europe and Middle East, for further guidance.
Happy pips.
