Weekly Forex Update
The USD traded lower against its key peers last week, following another set of weak economic data from the US and after the Federal Reserve (Fed) President, Janet Yellen admitted before the Senate Banking Committee that monetary authorities were concerned over soft US economic data lately. However, she confirmed that the Fed will stay on the path of QE3 tapering this year.
The US fourth quarter GDP expanded at an annual rate of 2.4%, sharply down from the 3.2% reported last month and the 4.1% logged in the third quarter. However, a couple of top Fed policy-makers indicated that they have not changed their outlook for relatively strong growth in 2014 despite the release of disappointing GDP data. St. Louis Fed chief, James Bullard stated that he remains optimistic about economic growth in 2014, while Charles Plosser, the Philadelphia Fed President indicated that the US economy is in better shape and that he sees steady growth in the nation going forward.
Additionally, the first-time claims for unemployment benefits rose above market estimates, to 348,000 for the week ended February 22, an increase of 14,000 from the previous week's revised figure of 334,000. The Reuters/Michigan consumer sentiment index saw a modest improvement in February, while the Conference Board reported that its consumer confidence index fell to a reading of 78.1 from a downwardly revised 79.4 in January. The US Commerce Department reported that durable goods orders excluding transportation rose 1.1%, the largest increase since May, after slipping 1.9% in December.
Amid improving economic landscape in the Euro-bloc, the European Commission indicated earlier during the week that economic recovery in the Euro-bloc is set to gain momentum as domestic demand improves gradually. Furthermore, upbeat retails sales, employment and consumer confidence data in Germany bolstered market sentiment and led Euro to trade higher against the US Dollar last week. Moreover, steady inflation in the Euro-zone, dampened speculation that the European Central Bank (ECB) will add to monetary stimulus at its policy meeting ahead this week.
The Pound registered gains against the USD, after domestic growth data confirmed that the UK economic recovery remained firmly on track during the final quarter of last year. Additionally, striking an upbeat note, an eminent economist at IHS Global Insight indicated that the British economy is set to grow at a faster pace in 2014, supported mainly by strong improvement in business investment.
The Yen spiked on Friday, after the Japanese industrial production and retail trade data for January, came in better-than market forecast. The Loonie rose sharply on Friday, after data revealed that the Canadian economy grew more-than-expected in the fourth quarter of 2013.
EUR USD
Last week, the EUR traded 0.45% higher against the USD and closed at 1.3802, as economic data from Germany boosted risk appetite. German retail sales rebounded in January, staging a strong recovery from the slump in December. Moreover, the number of unemployed people out of work in Europe's largest economy decreased by 14,000 to 2.914 million, while the jobless rate held steady at 6.8% in February. Additionally, forward looking GfK consumer confidence in the nation rose to a seven-year high in March. Another data revealed that the German economy expanded 0.4% in the final quarter of 2013, as initially estimated. Meanwhile, inflation in the Euro-zone stood unchanged at 0.8% in February, lowering the pressure on the central bank to take action to overcome fears of deflation. Moreover, unemployment in the region held steady at 12% in January. Additionally, economic confidence in the bloc improved for the tenth consecutive month to 101.2 in February. During the week, the pair traded at a high of 1.3825 and a low of 1.3642. The pair is expected to find its first support at 1.3688, with the next support expected at 1.3573. The first resistance is at 1.3871 and the next at 1.3939.
Traders are expecting an action packed week ahead wherein the outcome of the ECB policy meeting is awaited along with key economic data out of the bloc. Additionally, a speech by the central bank President, Mario Draghi is also expected to garner market interest.
GBP USD
In the last week, GBP traded 0.64% higher against the USD and closed at 1.6745, following the release of positive economic data in the UK. The UK GDP expanded 0.7% (QoQ), in line with preliminary estimate, while, on a yearly basis, the economy grew 2.7%, down slightly from the preliminary estimate for 2.8% growth. The Nationwide house price index advanced 9.4% annually, after gaining 8.8% in January. Also, mortgage approvals in the UK increased more-than-expected to 49,972 in January. However, the GBP came under pressure earlier in the week after two of the Bank of England (BoE) policymakers, David Miles and Spencer Dale downplayed concerns of an interest rate hike, stating that the central bank is in no hurry to raise interest rates and will focus more on supporting the economic recovery. The pair traded at a high of 1.6770 and a low of 1.6583 in the previous week. GBPUSD is expected to find its first support at 1.6629, with the next at 1.6512. Resistance exists first at 1.6816, and then at 1.6886.
Going forward, investors have their plate full with a raft of economic data scheduled for release in the UK. Also, investors will closely monitor the BoE monetary policy meeting for further direction.
USD JPY
The USD traded 0.82% lower against the JPY over the past week, closing at 101.80. The Yen rose following upbeat domestic economic data. The Japanese factory output highlighted an upward trend, surging 4.0% (MoM) in January, outpacing forecasts for a 3.1% rise. Consumer prices in the nation rose last month, albeit at a steady pace, a sign that the economy is making progress on ending years of deflation. Household expenditure rose more-than-expected by 1.1% (YoY) in January. Furthermore, Japan’s retail trade soared in January, while the unemployment rate remained steady for January. The pair traded at a high of 102.70 and a low of 101.55. The pair is expected to find its first support at 101.33, with the next support expected at 100.87. The first resistance is at 102.48, and the next at 103.17.
Traders would focus on leading economic and coincident index from Japan ahead in the week.
USD CHF
USD traded 0.83% lower against the CHF and closed at 0.8803 in the last week. In economic news, real GDP growth in Switzerland slowed more-than-expected to 0.2% in the final quarter of 2013 from 0.5% in the previous quarter. The KOF economic barometer index advanced to a reading of 2.03 in February from 2.01 in January. Meanwhile, the UBS consumption Indicator, declined to 1.44 in January from 1.80 in December. During the period, the pair traded at a high of 0.8931 and a low of 0.8778. The first support is at 0.8744, and the next at 0.8684. Resistance exists first at 0.8897, and then at 0.8990.
Apart from external cues, traders would keep an eye on Swiss economic data which includes manufacturing PMI, unemployment rate, consumer price index and industrial production data.
USD CAD
Last week, the USD traded 0.51% lower against the CAD and closed at 1.1064. The Canadian Dollar finished sharply higher on Friday, after data showed that the economy expanded in the final three months of 2013, recording its biggest annualized gain in over two years, though growth slowed in December. Statistics Canada reported that fourth-quarter economic growth expanded at an annualized pace of 2.9%, better than a 2.5% rise expected. However, the GDP contracted more-than-expected by 0.5% in December. In a separate release, the agency reported that country's current account deficit widened to $16 billion in the fourth quarter of 2013. USDCAD traded at a high of 1.1161 and a low of 1.1040 in the previous week. The first support is at 1.1016, with the next at 1.0967. The first resistance is at 1.1137, while the next is at 1.1209.
All eyes are now set on the Bank of Canada’s interest rate decision this week, after upbeat fourth quarter GDP data reduced the possibility that the central bank would consider cutting interest rates.
AUD USD
AUD traded 0.48% lower against the USD last week, and closed at 0.8924. In economic news, the total value of construction work done in Australia dipped 1.0% (QoQ) in the fourth quarter, while private capital expenditure, a key measure of investment, dipped 5.2% in the last quarter of 2013. Data released by the Reserve Bank of Australia (RBA) on Friday revealed that private sector credit in Australia rose 0.4% in January, missing market forecasts for an increase of 0.5%. During the week, the pair traded at a high of 0.9051 and a low of 0.8903. The first support is at 0.8868, and the next at 0.8811. The first resistance is at 0.9016, and the next at 0.9107.
Looking ahead, traders will closely monitor the RBA monetary policy meeting for further direction in the pair. Additionally, a series of economic data from Australia and China will influence risk sentiment among traders.
Gold
In the prior week, Gold traded 0.16% higher against the USD and closed at USD1326.44, as disappointing US economic data added to concerns that the economic recovery has lost momentum since the beginning of this year. Additionally, a cautious statement from the Fed chief, Janet Yellen that recent weak data indicates softness in the economy, weighed on the greenback. The yellow metal’s appeal as a safe haven asset also increased amid political and economic turmoil in Ukraine. The yellow metal traded at a high of 1345.45 and a low of 1318.78 in the previous week. Gold is expected to find support at 1315.00 and the next at 1303.55. The first resistance is at 1341.67, while the next is at 1356.89.
Ahead in the week, traders would focus on the US nonfarm payrolls data, after last week’s jobless claims data highlighted a fragile state of the recovery in the US labor market.
Crude Oil
Oil prices traded 0.38% higher against the USD in the last week and closed at USD102.59, drawing support from the weekly oil inventory data. The US Energy Information Administration reported the US crude oil inventories rose by 68,000 barrels for the week ended February 21, below expectations for an increase of 1.24 million barrels. Moreover, the American Petroleum Institute, indicated that crude inventories rose by 822,000 barrels compared to expectations for an increase of 1.5 million barrels. However, market sentiment remained under pressure, amid fresh political and military tensions between Russia and Ukraine. Oil traded at a high of 103.45 and a low of 101.02 in the previous week. Oil has its first major support at 101.26, while the next support exists at 99.92. The first resistance is at 103.69 and the next at 104.78.
The global macroeconomic data would remain a key catalyst in this week’s market action. Oil traders would also watch events unfolding in Ukraine, after key Western nations stated that there was an “armed invasion” of Ukraine’s volatile Crimean peninsula by Russian troops.
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