Weekly Forex Update
The greenback rose against its key peers last week, after the minutes of the Federal Open Market Committee’s (FOMC) January meeting revealed that policy makers discussed the possibility of raising interest rates in the near future. The minutes also indicated that the central bank will continue tapering monthly bond purchases as the year unfolds.
On Friday, the Dallas Fed President Richard Fisher stated that the US central bank has done enough to support the economy and should continue to reduce the size of its bond-buying programme.
However, the greenback’s gains were capped as another set of dismal US economic data prompted traders to ponder whether the Federal Reserve (Fed) will slow the pace of reductions of its stimulus program. Manufacturing activity in the New York region fell sharply in February, while the Fed Philadelphia manufacturing index deteriorated in February. The number of building permits issued in January dipped more-than-expected by 5.4% and US housing starts plunged 16%. Another report showed that the number of people filing for initial jobless benefits fell less-than-expected for the week ending February 15, while consumer price inflation in the nation rose in line with market expectations in January. On Friday, the National Association of Realtors indicated that US existing home sales fell 5.1% to 4.62 million units last month.
However, the International Monetary Fund (IMF) has cautioned the US and other advanced economies to avoid speedy exit from monetary stimulus, citing that the recovery is still weak and significant downside risks still remain. The agency also urged the European Central Bank (ECB) to slash its key interest rates below zero as it warned that deflation in the Euro-bloc is a key new risk facing the world economy.
In a key development, the Italian center-left leader, Matteo Renzi was sworn in as nation’s new Prime Minister on Saturday.
Elsewhere, commitment by Japan's central bank to carry on with its stimulus package longer than planned weighed on the Yen. In the minutes of the Bank of Japan’s (BoJ) January policy meeting, policy makers stated that bank’s monetary easing measures are not strictly set to end in two years.
The minutes of Bank of England (BoE) showed that the policymakers unanimously decided to leave the key interest rate at 0.50% and quantitative easing at £375 billion.
For the week ending February 21, the Canadian Dollar declined 1.4% against the greenback. The Australian Dollar also lost ground against the greenback on the back of disappointing manufacturing data from China, sparking fears of a slowdown in Asia's largest economy.
EUR USD
Last week, the EUR traded 0.31% higher against the USD and closed at 1.3740, following the release of a mixed set of economic data from the European region. The preliminary manufacturing PMI in Germany, France and the Euro-zone missed market expectations. Additionally, preliminary services PMI in the Euro-zone and France disappointed markets, while service sector activity in Germany rose in February. Consumer confidence in the Euro-area worsened in February, underlining the uneven and fragile recovery in the bloc. The ZEW sentiment indices in Germany and the Euro-zone revealed that economic sentiment unexpectedly deteriorated in February. However, the current situation index in Germany improved more-than-expected. Another set of data revealed that current account surplus in the Euro-zone stood at record €221.3 billion for 2013, while construction output in the bloc recovered in December after declining for three consecutive months. During the week, the pair traded at a high of 1.3774 and a low of 1.3685. The pair is expected to find its first support at 1.3692, with the next support expected at 1.3644. The first resistance is at 1.3781 and the next at 1.3822.
Investors will keep a tab on the string of European macro reports later this week for further direction.
GBP USD
In the last week, GBP traded 0.59% lower against the USD and closed at 1.6638, following a dismal set of macroeconomic data from the UK, raising concerns over the pace of economic recovery in the nation. The consumer price inflation in the UK fell to 1.9% in January, below the central bank's 2% target. Meanwhile, the ILO unemployment rate surprisingly rose to 7.2% for the three months to December. However, the number of people claiming jobless benefits continued to slide at a stable pace. Also, retail sales declined more than expected in January. The housing data released last week showed an increase in house prices in the UK, raising concerns that a housing bubble could develop in 2014. Meanwhile, the minutes of the BoE’s latest monetary policy meeting offered no significant insights into the near term direction of monetary policy. The pair traded at a high of 1.6824 and a low of 1.6612 in the previous week. GBPUSD is expected to find its first support at 1.6559, with the next at 1.6479. Resistance exists first at 1.6771, and then at 1.6903.
Sterling is expected to take further cues from the outcome of fourth quarter GDP and January’s mortgage approvals data from the UK.
USD JPY
The USD traded 0.79% higher against the JPY over the past week, closing at 102.64. Disappointing economic data released in Japan last week proved a dampener for the local Yen. Nation posted a record merchandise trade deficit of ¥2.8 trillion in January, as growth in exports was outstripped by a surge in import costs. Another data showed that industrial production increased at a weaker pace than earlier estimated in December, while Japan's all industry activity dropped unexpectedly. Also nation’s leading index rose less than initially estimated in December. The Yen also came under pressure after the BoJ indicated in the minutes of latest policy meeting that its stimulus program could continue for longer than the two years initially stated. The pair traded at a high of 102.84 and a low of 101.38. The pair is expected to find its first support at 101.73, with the next support expected at 100.83. The first resistance is at 103.19 and the next at 103.75.
Going forward, investors have their plate full with a raft of economic data including Japan’s inflation, retail trade and industrial production data.
USD CHF
USD traded 0.48% lower against the CHF and closed at 0.8877 in the last week. The Swiss Franc rose following the release of few positive economic data in Switzerland. In economic news, trade surplus surged in January driven by higher exports. Exports grew at a faster than earlier pace of 2.5% (MoM) in January, while imports declined for the first time in three months. A separate report revealed that the ZEW-CS indicator of economic expectations declined to a reading of 28.7 in February from 36.4 in January, while the current conditions index dropped to 47.6 in February. During the period, the pair traded at a high of 0.8930 and a low of 0.8855. The first support is at 0.8845, and the next at 0.8812. Resistance exists first at 0.8920, and then at 0.8962.
In the week ahead, market participants’ will eye fourth quarter growth data from Switzerland along with the UBS consumption and KOF leading indicator for January.
USD CAD
Last week, the USD traded 1.37% higher against the CAD and closed at 1.1121. The Statistics Canada reported that retail sales in Canada tumbled 1.8% in December, from a 0.5% rise recorded in November. Analysts had expected retail sales to decline 0.4%. The agency also reported that nation’s consumer price index rose 1.5% (YoY) in January, slightly higher than the 1.3% rise expected but below the BoC's target of 2%. The BoC Governor, Stephen Poloz indicated that he remains concerned about the state of the Canadian economy in the wake of the financial crisis. However, he further added that the local currency’s sharp decline in recent time versus the USD is a welcome development, since it signals growing momentum in its biggest trading partner, the US. The pair traded at a high of 1.1197 and a low of 1.0907 in the previous week. The first support is at 1.0953, with the next at 1.0785. The first resistance is at 1.1243, while the next is at 1.1365.
Ahead in the week, traders would focus on the Canadian gross domestic product data to be released by the Statistics Canada.
AUD USD
AUD traded 0.72% lower against the USD last week, and closed at 0.8967, following the release of another set of disappointing data from China, Australia’s biggest trading partner. The HSBC flash manufacturing purchasing managers' index (PMI) in China fell to a seven-month low of 48.3 in February. Moreover, the MNI business confidence index in China declined to a 5-year low of 50.2 in February. The minutes of the Reserve Bank of Australia’s latest policy meeting revealed that interest rates in the nation are likely to remain steady at present levels in the near term. However, the bank indicated that economic growth will remain subdued through 2014 and cautioned that improvements in the labor market will take time. During the week, the pair traded at a high of 0.9083 and a low of 0.8935. The first support is at 0.8907, and the next at 0.8847. The first resistance is at 0.9055, and the next at 0.9143.
In the absence of major economic data ahead this week from Australia, market participants will keep a tab on global economic news for further direction.
Gold
In the prior week, Gold traded 0.42% higher against the USD and closed at USD1324.28, following another set of mostly weaker-than-expected US economic data. However, gains were capped as the minutes of the Fed’s January policy meeting highlighted the possibility of an increase in interest rates earlier-than-expected. The yellow metal traded at a high of 1332.45 and a low of 1307.41 in the previous week. Gold is expected to find support at 1310.31 and the next at 1296.34. The first resistance is at 1335.35, while the next is at 1346.42.
In the week ahead, market participants will continue to pay close attention to US economic data for further indications on the strength of the economy and the future course of monetary policy.
Oil
Oil prices traded 1.89% higher against the USD in the last week and closed at USD102.20, amid speculation that weather conditions in the US Northeast will boost demand for oil. In a key development, reports indicated that Iran’s top two oil customers, China and India boosted their imports in January. Last week, the American Petroleum Institute reported a decline of 473,000 barrels in the US crude inventories for the week ended February 14. Analysts had forecast a climb of 1.9 million barrels in crude supplies. Meanwhile, the Energy Information Administration indicated that crude stockpiles rose 1 million barrels for the week ended February 14, against the expectations for a climb of 1.9 million barrels. Oil traded at a high of 103.80 and a low of 100.45 in the previous week. Oil has its first major support at 100.50, while the next support exists at 98.80. The first resistance is at 103.85 and the next at 105.50.
In the week ahead, traders would pay close attention to the US economic data for further directions to the oil prices.
Happy pips.
