Weekly Forex Update
Safe haven buying was the main theme in the currency market last week, with the US Dollar recording handsome gains versus riskier currencies, as the US Federal Reserve (Fed) announced that it would continue with its tapering program at the Federal Open Market Committee (FOMC) meeting, cutting another $10 billion from its monthly purchases.
Economic data released in the US last week was mixed, as new home sales, pending home sales, durable goods orders and initial jobless claims data disappointed investors. However, upbeat services PMI, consumer sentiment and personal spending data supported the greenback's rally. Traders also applauded the release of fourth quarter GDP in the US that grew 3.2%, setting the stage for stronger growth in 2014.
Additionally, the Dallas Fed Chief, Richard Fisher supported the central bank’s tapering action indicating that it should end its bond-buying stimulus effort as quickly as possible.
The Fed’s decision to taper weighed heavily on the emerging-market currencies, which had a volatile week. The Russian Rouble fell sharply, while the Turkish Lira and the South African Rand also plunged despite interest rate hikes by the respective central banks.
The Euro came under pressure to hover near the 1.35 mark against the USD, while the Pound also lost ground and nudged well below its weekly highs, as concerns over slowing global growth and the withdrawal of monetary stimulus by the Fed weighed on investors’ risk appetite. Moreover, lower than expected inflation in the Euro-zone and Germany further weighed on the performance of EUR, while comments from the Bank of England Governor prompted traders to move away from GBP.
In Switzerland, a leading index for consumer spending, the Swiss UBS consumption indicator, rose to 1.81 in December. Additionally, a forward-looking survey, the KOF economic barometer, advanced for the tenth consecutive month to a reading of 1.98 in January, indicating that the nation’s economy may gain momentum in the first half of 2014.
The Canadian Dollar finished lower for the week. However losses were capped after it rose on Friday following reports that the Canadian economy grew in line with market expectations by 0.2% (MoM) in November, marking the fifth straight monthly increase.
In Australia, a survey by the National Australia Bank (NAB) revealed that the nation’s business conditions surged to its highest in more than two-and-a-half years in December, highlighting improvements in trading conditions and corporate profitability. The report provided much relief to traders, as the Australian Dollar jumped subsequently.
The Kiwi Dollar registered a sharp decline against the USD, slipping to its lowest level since September 2013, after the Reserve Bank of New Zealand maintained status quo on its policy on Wednesday and kept interest rates on hold at a record low 2.5%. Additionally, downbeat comments from its Governor, Graeme Wheeler a day after, proved further dampener for the NZD. He indicated that despite nation’s economy growing at a faster rate, high exchange rate has been a “headwind” and that the central bank would like to see a lower exchange rate.
EUR USD
Last week, the EUR traded 1.27% lower against the USD and closed at 1.3504, as the Fed’s decision to continue tapering its bond-buying program weighed on the common currency amid increased demand for the greenback. Economic data released last week from the bloc was uninspiring, with the Euro-zone sentiment indices recording weaker than expected readings for January. Additionally, the labor market in the Euro-area remained in the stagnation in December, while fears of deflation in the Euro-zone rose after the annual inflation rate fell in December to the level that recently led the European Central Bank (ECB) to cut interest rates. Meanwhile, a surprise slump in German retail sales for December and an unexpected easing in the nation’s consumer price inflation further weakened the single currency. During the week, the pair traded at a high of 1.3717 and a low of 1.3479. The pair is expected to find its first support at 1.3416, with the next support expected at 1.3329. The first resistance is at 1.3654, and the next at 1.3805.
Ahead in the week, investors await a raft of economic data scheduled for release across the Euro-zone. Additionally, all eyes would also set on the ECB’s interest rate decision.
GBP USD
In the last week, GBP traded 0.36% lower against the USD and closed at 1.6440, amid a broad strength in the US Dollar, as investors off-loaded their positions in riskier currencies on fears that the US Fed would continue to taper stimulus measures in months to come. Meanwhile, the Pound also came under pressure after the BoE Governor indicated that low unemployment and easing inflation in UK alone will not warrant a hike in interest rates. He also indicated that more signs of domestic economic recovery are needed to alter the central bank’s policy stance. The Pound had earlier breached the 1.66 mark against the greenback on Tuesday, after growth data for the fourth-quarter confirmed that the UK has emerged from its economic slowdown. The pair traded at a high of 1.6627 and a low of 1.6426 in the previous week. GBPUSD is expected to find its first support at 1.6368, with the next at 1.6297. Resistance exists first at 1.6569, and then at 1.6699.
This week, the BoE monetary policy meeting will attract considerable investor attention. Additionally, a slew of domestic economic releases would also likely hold the key for determining the near term trend in the Pound.
USD JPY
The USD traded 0.08% lower against the JPY over the past week, closing at 102.34. The Yen rose, after the Bank of Japan (BoJ), revealed in its minutes of the latest monetary policy meeting, that policymakers were of the opinion that an aggressive easy policy started in April 2013 has shown a positive effect on economic prospects and that there is no immediate need for the central bank to further ease policy. Additionally, data released revealed that consumer price inflation in the nation in December climbed at the fastest pace in over five years, heading steadily towards the BoJ’s 2% target. The pair traded at a high of 103.46 and a low of 101.84.The pair is expected to find its first support at 101.64, with the next support expected at 100.93. The first resistance is at 103.26, and the next at 104.17.
Apart from macro releases from Japan ahead in the week, the direction of the JPY is likely to be determined by external factors.
USD CHF
USD traded 1.14% higher against the CHF and closed at 0.9051 in the last week, after the Federal Open Market Committee (FOMC) on Wednesday, announced a $10 billion reduction in its bond-buying program to $65 billion a month. Moreover, investors applauded a robust set of economic data released in the US during the previous week. However, losses in the Swiss Franc were capped, after a report indicated a strong improvement in the consumption trend in Switzerland. The UBS consumption indicator rose to a reading of 1.81 in December from a reading of 1.40 points in November. Additionally, the Swiss KOF leading indicator advanced to a level of 1.98 in January from 1.95 in December. During the period, the pair traded at a high of 0.9068 and a low of 0.8931. The first support is at 0.8953, and the next at 0.8874. Resistance exists first at 0.9090, and then at 0.9148.
Ahead in the week, retail sales, trade balance and the SVME manufacturing PMI data from Switzerland will be on radar. Additionally, traders would keep a tab on global news during the week.
USD CAD
Last week, the USD traded 0.45% higher against the CAD and closed at 1.1120, after Fed policy makers agreed on a second reduction in the amount of the central bank's monthly asset purchases. Moreover, traders reduced their positions in riskier currencies like the CAD, amid fears of slowing growth in China and as emerging-market currencies posted heavy losses. However, the Loonie was in demand on Friday, after domestic data revealed that the Canadian economy grew in line with market expectations in November. USDCAD traded at a high of 1.1226 and a low of 1.1029 in the previous week. The first support is at 1.1024, with the next at 1.0928. The first resistance is at 1.1221, while the next is at 1.1322.
Going forward, investors have their plate full with a raft of Canadian data scheduled for release.
AUD USD
AUD traded 0.51% higher against the USD last week, and closed at 0.8752. However, sentiment towards the Australian Dollar remained negative, amid signs of a slowdown in China and after the US Fed decided to trim its monthly bond purchases by another $10 billion. Moreover, the Reserve Bank of Australia's dovish stance was supported by its external board member, Heather Ridout, who indicated that the AUD needs to fall even further to protect the economy from a slowdown in mining sector. The only driver for the Aussie during last week was Tuesday's report that showed that business conditions in Australia for December improved to the highest in over two years. The NAB survey reported that business conditions jumped seven points to a reading of 4.0 in December from -3.0 in November. However the business confidence index remained steady at 6.0. During the week, the pair traded at a high of 0.8828 and a low of 0.8676.The first support is at 0.8676, and the next at 0.8600. The first resistance is at 0.8828, and the next at 0.8904.
Ahead in the week, traders would mainly focus on the Reserve Bank of Australia’s interest rate decision, amid expectations that policymakers would keep the benchmark rate unchanged at a record low 2.5%.
Gold
In the prior week, Gold traded 1.80% lower against the USD and closed at USD1244.55, following better than expected reading on consumer sentiment and in-line fourth quarter GDP growth in the US. Gold was initially supported by fears about growth in emerging markets, despite the Fed's decision to taper its stimulus measures. The yellow metal traded at a high of 1276.57 and a low of 1238.17 in the previous week.
Gold is expected to find support at 1229.62 and the next at 1214.70. The first resistance is at 1268.02, while the next is at 1291.50.
Crude Oil
Oil prices traded 0.56% higher against the USD in the last week and closed at USD97.47, as traders cheered strong US growth data, which raised expectations for a rise in oil demand. The Commerce Department reported that the US GDP expanded at a seasonally adjusted annual rate of 3.2% in the fourth quarter. Additionally, bitter cold weather in the US also boosted heating oil demand. However, gains were capped on concerns that manufacturing activity in China is slowing and as the US Fed decided to trim its monetary stimulus. During the week, the Energy Information Administration (EIA) and the American Petroleum Institute (API), both reported that the US crude oil inventories jumped for the week ended January 24. Oil traded at a high of 98.59 and a low of 95.21 in the previous week. Oil has its first major support at 95.59, while the next support exists at 93.71. The first resistance is at 98.97, and the next at 100.47.
In the week ahead, traders would focus on the global economic indicators and the weekly oil inventories data from EIA and API, for further guidance to oil prices.
Happy pips.
