Weekly Forex Update
The greenback finished the previous week in the red against its key peers, as uncertainties of the outcome of the US Federal Reserve’s (Fed) much awaited first policy meeting for the year kept investors on sidelines. In the recent past, market participants have witnessed many of the FOMC members wanting the central bank to seek exit from its ultra loose monetary stance.
During the past week, the economic news from the US disappointed investors. The initial jobless claims rose in the week ended January 24, and manufacturing purchasing managers’ index (PMI) slipped from its previous levels in January. Also, existing home sales and economic activity index in Chicago fell in December.
Markets elsewhere in the past week were driven by the outcome of the central bank’s meetings from Asia, Europe and Canada and remarks from key policy makers wherein they reiterated their dovish stances.
The Euro traded higher against the USD, after better than expected macroeconomic data. Meanwhile, the European Central Bank’s (ECB) President, Mario Draghi, at the World Economic Forum, stated that the recovery in the Euro-zone is still “fragile” and that the region cannot afford to let go its structural reforms, as it still continues to witness uneven growth. He further reiterated his earlier stance that inflation is likely to stay at current level for the next two years and would gradually move to the ECB’s 2% target.
The Bank of England (BoE) in the minutes of its latest policy meeting revealed that the central bank is no mood to lift the interest rate even though the nation’s labor market continues to show signs of improvement. Meanwhile, yet another impressive domestic jobs report showed that unemployment rate stood just an inch away from its threshold rate.
The Bank of Japan (BoJ) left its interest rates unchanged at its latest policy meeting, citing that bold easing measures undertaken under the guidance of the nation’s Prime Minister, Shinzo Abe, is helping to push the inflation towards the 2% target. It also reaffirmed that the nation’s economy continues to recover at a moderate pace.
The Bank of Canada (BoC) also followed suit to leave its interest rates unchanged at 1% level. It further forecasted that inflation would gradually pick up in the nation over a two year period.
The Aussie moved southwards, after one of the Reserve Bank of Australia’s (RBA) top official voiced that an exchange rate of around 80 US cents would be helpful in fostering economic activities in the island nation.
EUR USD
Last week, the EUR traded 1.13% higher against the USD and closed at 1.3678, amid increased risk appetite among investors, on the back of an upbeat assessment for the global economy from the world’s leading economic agencies. Moreover, domestic macroeconomic data from the Euro-zone and its member nations also came as a blessing for the common currency. The ZEW economic sentiment in the Euro-zone rose in January, while the consumer confidence in the bloc showed further signs of improvements in the similar period. Moreover, a pick up in the manufacturing and services activities across the Euro-region, signaled that the recovery in the bloc is slowly gaining the pace. Meanwhile, the European Central Bank’s Chief’s, Mario Draghi, dismissed the concerns of deflations in the common currency bloc and opined that it would recover gradually. In a key development, Moody’s rating agency maintained its “Negative” outlook for the French economy. During the week, the pair traded at a high of 1.3740 and a low of 1.3507. The pair is expected to find its first support at 1.3543, with the next support expected at 1.3409. The first resistance is at 1.3776, and the next at 1.3875.
The German and the Euro-zone’s employment and inflation data are set to drive market action during this week, along with the German IFO indices and a slew of Euro-zone’s economical gauges, which would provide deep insights about the bloc’s economy.
GBP USD
In the last week, GBP traded 0.54% higher against the USD and closed at 1.6499, as another buoyant jobs report for the UK supplemented the recent robust recovery of the nation’s economy. It revealed that the jobless claims in the nation continued to drop for fifteen consecutive months and the nation’s unemployment rate stood just a notch away from the 7% threshold rate set by the central bank. Meanwhile, the minutes of the BoE’s latest policy meeting revealed that the policy makers unanimously saw no urgency to hike the interest rates, despite an incredible slump in the nation’s jobless rate. Separately, the BoE’s Governor, Mark Carney, echoed similar views that the rise in the interest rates is still not there on the cards. The pair traded at a high of 1.6670 and a low of 1.6395 in the previous week. GBPUSD is expected to find its first support at 1.6373, with the next at 1.6246. Resistance exists first at 1.6648, and then at 1.6796.
The UK gross domestic product data scheduled this week would be catalyst for the Pound’s movements. In addition, UK would also release consumer confidence and house prices data.
USD JPY
The USD traded 1.81% lower against the JPY over the past week, closing at 102.43. During the week, the BoJ kept monetary tools unaltered, citing that the bold easing measures undertaken under the guidance of the nation’s Prime Minister, Shinzo Abe, are proving favorable for the nation, as the nation is inching closer to its inflation target at a steady pace. Also, the central bank in its monthly economic bulletin reaffirmed that that the nation’s economy continues to recover at a moderate pace, helped by rise in exports and business fixed investments. In economic news, the leading and the coincident index in Japan improved in November. However, industrial production in the nation dropped in November. The pair traded at a high of 104.86 and a low of 102.00. The pair is expected to find its first support at 101.33, with the next support expected at 100.24. The first resistance is at 104.19, and the next at 105.96.
Japan is expected to release its highly tracked inflation figures during the week. Investors would also keep a close tab on the nation’s unemployment, industrial production, housing and trade balance data.
USD CHF
USD traded 1.86% lower against the CHF and closed at 0.8949 in the last week. The Swiss Franc gained ground after the Swiss government agreed to the SNB’s appeal to raise the reserve ratio for the capital banks in the nation, to curb the rising prices in the nation’s housing market. On the data front, ZEW expectation statistic in Switzerland dropped unexpectedly in January. During the period, the pair traded at a high of 0.9158 and a low of 0.8968. The first support is at 0.8905, and the next at 0.8841. Resistance exists first at 0.9095, and then at 0.9221.
The Swiss UBS consumption indicator for December and KOF leading indicator for January are the couple of major macroeconomic updates from the nation during the week.
USD CAD
Last week, the USD traded 0.89% higher against the CAD and closed at 1.1070. The Loonie came under pressure, after the BoC left its interest rates unchanged, stating that the low inflationary pressure is expected to persist in the nation. Furthermore, it stated that the strength of the Loonie still endangers the competitive edge of the Canadian exports. However, the losses were capped after the nation’s retail sales rebounded at a quicker pace in Canada in November. Meanwhile, the consumer price inflation inched higher in December. USDCAD traded at a high of 1.1175 and a low of 1.0929 in the previous week. The first support is at 1.0941, with the next at 1.0812. The first resistance is at 1.1187, while the next is at 1.1304.
The Loonie investors would track the nation’s GDP data for November, set to release during the week. They would also track economic data and the outcome of the monetary policy decision of the US Federal Reserve during the week.
AUD USD
AUD traded 0.75% lower against the USD last week, and closed at 0.8708, after one of the RBA’s key policymaker opined that an exchange rate of around 80 US cents might be desirable for the economical activities in Australia. Also, a series of disappointing domestic data from China, Australia’s largest trading partner, weighed on the Australian Dollar. However, the losses were limited as a larger than expected reading in the Australian inflation figures stoked expectations that the nation’s central bank might need to delay its decision to further trim its interest rates. Also, consumer confidence in Australia improved in January. During the week, the pair traded at a high of 0.8890 and a low of 0.8660. The first support is at 0.8615, and the next at 0.8523. The first resistance is at 0.8845, and the next at 0.8983.
Australia is slated to release its business conditions and leading index data during the week.
Gold
In the prior week, Gold traded 1.11% higher against the USD and closed at USD1267.42, as the greenback weakened following the release of a slew of discouraging economic data from the US. The weekly initial jobless benefits increased for the week ended January 18, while Markit manufacturing PMI declined in January. Also CB leading indicator fell in December. Separately media reports emerged that the Indian government may relax the import duties on the yellow metal. However, concerns that the US Fed might introduce yet another policy taper exerted some downward pressure on the prices of the yellow metal. The yellow metal traded at a high of 1272.73 and a low of 1231.85 in the previous week. Gold is expected to find support at 1241.94 and the next at 1216.45. The first resistance is at 1282.82, while the next is at 1298.21.
The yellow metal might find some support during the festive buying spree in the China economy in this week. However, markets would also cautiously eye the outcome of the Fed’s policy meeting as it could single handedly fluctuate the gold prices.
Crude Oil
Oil prices traded 3.04% higher against the USD in the last week and closed at USD96.93, as optimism in the global growth prospects supported the demand prospects of the energy prices. Last week, the International Monetary Fund raised its global growth outlook for the 2014. However, reports that the manufacturing activity in the China returned to the contraction territory and the better than expected compliance of Iran to cease its nuclear activity kept the prices under check. Separately, the American Petroleum Institute reported that the US crude oil stockpiles rose 4.86 million barrels in the week ended January 17. Meanwhile, the Energy Information Administration reported a rise of 1 million barrels in the US crude oil inventories in the similar period. Oil traded at a high of 97.84 and a low of 93.43 in the previous week. Oil has its first major support at 94.29, while the next support exists at 91.66. The first resistance is at 98.70, and the next at 100.48.
Moving forward, Wednesday’s outcome of the Federal Reserve’s monthly meeting will be in focus amid expectations for a reduction to USD65 billion from the current USD75 billion in the bank’s stimulus program. In addition, the initial estimate of US fourth quarter gross domestic product will also remain in focus on Thursday.
Happy pips.
