Weekly Forex Update
In the first week of 2014, the US Dollar swung between gains and losses and finally settled mixed against its key peers. However, gains in the greenback came after the key officials from the US Federal Reserve (Fed) painted a bright picture of the US economy, signaling a further rollback of the bond purchases.
The outgoing Fed Chairman, Ben Bernanke, opined that the economical headwinds for the US economy have begun to fade and expected the nation to grow further in the coming months. He also backed the necessity of the central bank’s ultra loose monetary policy to support the US economy. Meanwhile, Fed’s Richmond President, Jeffrey Lacker, cautioned that the central bank might consider bringing in further reduction in its bond purchases in its coming policy meetings.
Economic data released in the US during the last week were mixed. Pending home sales rebounded at a slower pace in November. A separate report released by the Institute of Supply Management revealed that manufacturing purchasing managers’ index (PMI) in December rose at a slower pace. However, consumer confidence in the US improved in December, while the weekly initial jobless benefits dropped unexpectedly.
In the week ahead, the US Federal Reserve is to publish the minutes of its December meeting on Wednesday, while the US jobs report for December is scheduled to be released on Friday. Meanwhile, interest rate decisions by the European Central Bank and the Bank of England will also be in focus.
The Euro ended the week in the red against the USD. Meanwhile, the manufacturing activities in the major members of the Euro-bloc picked-up in December. In a key development, Latvia became the eighteenth member of the Euro-zone. The Euro traders are expected to have a busy week with economical and fundamental developments scheduled throughout the week that would keep them busy adjusting their bets.
The winning streak of the Sterling took a halt in the past week, after manufacturing activity in the UK unexpectedly cooled for December, highlighting that obstacles to economic recovery continue to persist. Moreover, the UK’s Prime Minister, David Cameron, in his New Year’s message cautioned that the UK’s economical recovery still remains fragile. He also pledged to chalk out a five-part plan to foster the economical activities in the nation. Meanwhile, he dismissed the fears of a housing bubble in the UK.
The Bank of Japan’s (BoJ) Governor, Haruhiko Kuroda, stated to keep size of the monetary stimulus unchanged until the nation achieves its inflation target. The JPY traders are expected to have another light week, amid a thin economic calendar.
The first week of the New Year came as a blessing for the Loonie, amid escalating expectations that the recent economical improvements in its southern neighbor might result in healthy trading activity between the two North American nations.
The Aussie pared its first weekly gain in recent weeks, after a report revealed that the manufacturing and services activity in its major trading partner, China, slowed in the past month, dampening the trading prospects between the two nations.
EUR USD
Last week, the EUR traded 1.16% lower against the USD and closed at 1.3603. During the week, Markit economics highlighted that the manufacturing activities in most of the major nations in the Euro-zone showed healthy signs of improvement in December, suggesting the economic conditions in the bloc have started to pick up. Meanwhile, the bloc got its eighteenth member Latvia in the first week of the New Year.
In other economic news, M3 Money Supply rose 1.5% (YoY) in November, whereas the private loans dropped in the similar period. During the week, the pair traded at a high of 1.3820 and a low of 1.3592. The pair is expected to find its first support at 1.3523, with the next support expected at 1.3444. The first resistance is at 1.3751, and the next at 1.3900.
The ECB’s monetary policy meeting would be the highly tracked event this week, which would provide clues as to how the central bank intends to combat the economical slowdown in the Euro region. Also, the Euro-zone’s growth report and consumer price index data would be on the radar of market participants.
GBP USD
In the last week, GBP traded 0.35% lower against the USD and closed at 1.6427, as the investors in the UK Pound booked profits following the recent rally in the Sterling and as manufacturing PMI report for December showed a decline in the manufacturing activity in the UK. Meanwhile, construction PMI dropped at a slower pace in December, while mortgage approvals climbed at a multi month high in November. The British Prime Minister David Cameroon, chalked out a five part plan to foster the economic activities in the nation. However, he also cautioned that the recovery in the nation still remains fragile. The pair traded at a high of 1.6604 and a low of 1.6395 in the previous week. GBPUSD is expected to find its first support at 1.6347, with the next at 1.6266. Resistance exists first at 1.6556, and then at 1.6684.
The Bank of England’s interest rate decision would take the driver’s seat this week, followed by the UK’s growth forecast by the National Institute of Economic and Social Research. Also, a string of domestic macroeconomic updates would keep investors busy in adjusting their trades in the pair.
USD JPY
The USD traded 0.64% lower against the JPY over the past week, closing at 104.47. The BoJ’s Governor, Haruhiko Kuroda, voiced that the central might not cut the size of its monetary stimulus until the nation does not reach its inflation target. The pair experienced a fairly thin trading week, as markets in Japan remained shut for most of the days in the past week, leaving investors wait for the next batch macroeconomic data from the nation. The pair traded at a high of 105.46 and a low of 104.07. The pair is expected to find its first support at 103.87, with the next support expected at 103.28. The first resistance is at 105.26, and the next at 106.06.
The BoJ’s monthly economic survey is the key update in Japan during the week. Meanwhile, investors are also expected to keep a close tab on the release of the nation’s Eco watcher’s indices during the week. Traders would also keep a tab on the US Federal Reserve’s minutes of its December meeting set to release on Wednesday.
USD CHF
USD traded 1.56% higher against the CHF and closed at 0.9043 in the last week, as remarks from the US Fed Chairman, Ben Bernanke, that the US economy is expected to grow in the coming months, supported the greenback. On the data front, the Swiss leading indicator rose to a reading of 1.95 in December. Meanwhile, manufacturing activity in the nation rose at a slower pace in the similar period. During the period, the pair traded at a high of 0.9031 and a low of 0.8860. The first support is at 0.8894, and the next at 0.8792. Resistance exists first at 0.9065, and then at 0.9134.
Going ahead, the Swiss inflation and unemployment report would act as a catalyst in determining the weekly trend in the pair. The Swiss National Bank is to publish data on its foreign currency reserves on Tuesday, which would be closely scrutinized for indications of the size of the bank’s operations in currency markets.
USD CAD
Last week, the USD traded 0.80% lower against the CAD and closed at 1.0618. The Loonie found support amid optimism that the recent economical developments in the US might improve the trading activity between the two nations. However, a holiday shortened week kept the trading volumes limited, with investors taking clues from the news originating from the US. USDCAD traded at a high of 1.0729 and a low of 1.0587 in the previous week. The first support is at 1.0560, with the next at 1.0503. The first resistance is at 1.0702, while the next is at 1.0787.
Going forward, the Loonie traders would track the Canadian jobs, housing and manufacturing report to evaluate the health of the Canadian economy.
AUD USD
AUD traded 1.22% higher against the USD last week, and closed at 0.8976, reversing its directions from the previous weekly losses. However, a slowdown in the Chinese manufacturing and services activity kept the gains under constant check. On the data front, private sector credit in Australia rose 0.3% (MoM) in November. Meanwhile, the performance of manufacturing index released by the Australian Industry Group stood at a reading of 47.6 in December. During the week, the pair traded at a high of 0.9007 and a low of 0.8832. The first support is at 0.8870, and the next at 0.8763. The first resistance is at 0.9045, and the next at 0.9113.
The Australian trade balance, retail sales and building permits are the important macroeconomic indicators ahead in the week. Also the Aussie investors would keep a close tab on a string of macroeconomic releases from China.
Gold
In the prior week, Gold traded 1.90% higher against the USD and closed at USD1237.38, reversing its directions from the previous decline, as bargain hunters grabbed the cheap valuations in the yellow metal. The gold prices found support, amid speculations that physical buying in China during its festive week would help the yellow metal revive some of its recent losses. Meanwhile, the World Gold Council projected that the Chinese gold consumption might have exceeded 1,000 tonnes in 2013. However, the gains in the yellow metal were limited, as yet another batch of encouraging US data resulted in a rise in the risk appetite. The yellow metal traded at a high of 1241.30 and a low of 1182.27 in the previous week. Gold is expected to find support at 1199.33 and the next at 1161.29. The first resistance is at 1258.36, while the next is at 1279.35.
Moving forward, the gold traders would focus closely on the release of the minutes of the Fed's December meeting. 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. A focal point is whether there is going to be a reduction of $10 billion at every meeting, or whether they will wait and see for a while.
Crude Oil
The crude oil kicked off the New Year on a negative note, dropping 5.96% against the USD, to settle at $94.21, as reports of the resumption of the Libyan crude oil stockpiles eased the supply concerns. A strong dollar also pressurized crude oil prices. Moreover, dismal macroeconomic data points from China also dampened demand prospects for the crude oil. During the week, the American Petroleum Institute reported that the US crude oil stock piles fell 5.67 million barrels for the week ended December 27. Meanwhile, the Energy Information Administration reported a drop of 7 million barrels for the similar period. Oil traded at a high of 100.42 and a low of 93.86 in the previous week. Oil has its first major support at 91.91, while the next support exists at 89.6. The first resistance is at 98.47, and the next at 102.72.
The decline in crude prices is expected to be further tone-down in the few days ahead after a wobbly week, as investors awaits the minutes of the US Federal Reserve's previous board meeting, for further insight into the reasons behind the decision and offer clues about how quickly the Fed will wind down the stimulus. The oil prices would also take upward or downward course depending upon the developments in the Middle East.
Happy pips.
