Weekly Forex Update
The greenback finished mixed against its key peers last week. The USD had started the week initially higher as concerns between Ukraine and Russia triggered risk aversion and boosted the demand for the safe haven USD.
In economic news, personal income and spending in the US both rose more-than-expected in January. The ISM manufacturing PMI climbed to a reading of 53.2 in February, while the Markit manufacturing PMI advanced to 57.1, led by a pick-up in new orders. In an upbeat sign for the labor market, first-time claims for unemployment fell more-than-expected for the week ended March 1. Additionally, non-farm payroll employment rose by 175,000 jobs in February compared to market expectations for an increase of about 150,000 jobs.
Elsewhere, Fed Chief Janet Yellen indicated that the central bank will do all it can to ensure that the US recovery remains on track, as the economy is still not as healthy as it should be.
The Euro strengthened against the greenback after the European Central Bank (ECB) decided to keep its monetary policy unchanged and upgraded the Eurozone’s growth outlook. The central bank raised its forecast for the bloc to grow 1.2% in 2014, up from 1.1% previously, citing a gradual recovery in domestic and external demand. Additionally, the ECB chief indicated easing deflation risks in the region.
In the UK, the Bank of England (BoE) kept its interest rates steady at 0.50% and also agreed to maintain its quantitative easing stimulus at £375 billion, in line with market expectations. Ahead in the week, the outcome of UK inflation report will be key as it would provide an outlook from the central bank with regards to both inflation and growth.
The Yen fell against the greenback, after the Bank of Japan (BoJ) Deputy Governor, Kikuo Iwata reiterated that the central bank stands ready to ease monetary policy further if risks to its 2% inflation target arise.
The Canadian Dollar came under pressure on Friday on disappointing local jobs data. Data released by the Statistics Canada revealed that the economy lost 7,000 net jobs in February, giving back some of January’s gains and missing analysts estimates that the economy would add 15,000 jobs.
The Australian Dollar surged last week, as the Reserve Bank of Australia (RBA) kept its interest rate on hold at a record low of 2.5% and after the speech by its Governor, Glenn Stevens raised speculation among traders that the central bank’s easing phase is done. The Governor indicated that nation’s unemployment level will fall this year and re-affirmed that economic growth would pick-up and surpass 3% in 2014.
EUR USD
Last week, the EUR traded 0.53% higher against the USD and closed at 1.3875, after the ECB forecasted the Euro-zone economy to expand 1.2%, higher than the 1.1% growth it had projected earlier. Additionally, the ECB chief indicated easing deflation risks in the region, lending support to the common currency. The Euro also rose underpinned by improved risk appetite following the release of largely upbeat economic data in Europe. The manufacturing and services PMI in most of the countries in the bloc advanced more-than-expected in February. Additionally, upbeat retail sales and in line GDP data in the Euro-zone provided further support to the EUR. In Germany, industrial production increased for a third straight month in January, while the factory orders rebounded, signaling a strong pace of recovery in Euro-area's biggest economy. During the week, the pair traded at a high of 1.3916 and a low of 1.3707. The pair is expected to find its first support at 1.3749, with the next support expected at 1.3624. The first resistance is at 1.3958, and the next at 1.4042.
Looking ahead, a slew of economic data from the region will keep Euro investors on their toes. While the German trade and inflation data will keep markets interested, the Eurozone industrial, investor confidence and employment data are also important. Additionally, the ECB monthly report will also grab market attention this week.
GBP USD
In the last week, GBP traded 0.19% lower against the USD and closed at 1.6713, despite the release of positive domestic data in the UK. Manufacturing activity in the UK improved in February, while services sector activity in the nation slowed less-than-expected in the similar period. Additionally, housing market continues to strengthen as British mortgage approvals recorded its highest level since November 2007 in January. Furthermore, a report by Hometrack showed that house prices in the UK rose the most since April 2007 in February, while the Halifax house price index rose 2.4%. Moreover, the British construction sector expanded in February, but the pace of expansion eased. On Thursday, the BoE voted to leave it key interest rates unchanged at their record low of 0.50%, and also left its quantitative easing program steady at £375 billion. The pair traded at a high of 1.6788 and a low of 1.6640 in the previous week. GBPUSD is expected to find its first support at 1.6639, with the next at 1.6566. Resistance exists first at 1.6787, and then at 1.6862.
Going forward, traders will remain focus on the BoE’s inflation report. With markets expecting an early interest rate rise, any remarks hinting anything sooner will boost the Pound. Traders would also keep a tab on domestic manufacturing and industrial production data for further direction.
USD JPY
The USD traded 1.45% higher against the JPY over the past week, closing at 103.28, following the release of upbeat economic data in the US. Meanwhile, the Yen came under pressure after the BoJ Deputy Governor, Kikuo Iwata indicated that the central bank is prepared to adjust its monetary policy further, if required. In a speech at the Upper House Budget Committee, he reiterated the central bank's policy stance stating that bank will continue to assess the risks to its economic and price outlook, and make necessary changes to achieve the 2% inflation target. In economic news, the leading economic index advanced to a reading of 112.2 in January from 111.7 in December, recording its fifth consecutive increase. Additionally, the coincident economic index advanced to 114.8 in January from 112.3 in December. The pair traded at a high of 103.78 and a low of 101.19. The pair is expected to find its first support at 101.72, with the next support expected at 100.16. The first resistance is at 104.31, and the next at 105.34.
All eyes are now set on the Bank of Japan’s interest rate decision this week, along with other domestic economic data from Japan.
USD CHF
USD traded 0.27% lower against the CHF and closed at 0.8779 in the last week. In economic news, the SVME PMI rose to a seasonally adjusted reading of 57.6 in February, highlighting that manufacturing activity in Switzerland grew at the fastest pace since May 2011. Data released by the State Secretariat for Economic Affairs revealed that Swiss unemployment rate held steady at 3.2% in February. Moreover, consumer price index edged-up 0.1% (MoM), following a 0.3% decline recorded in January. Over the weekend, the Swiss National Bank Chairman, Thomas Jordan in a newspaper interview, indicated that the central bank would intervene and buy unlimited quantities of foreign currency to defend the Franc from strengthening further than 1.20 per Euro, if tensions in Ukraine push up the Swiss currency. During the period, the pair traded at a high of 0.8898 and a low of 0.8756. The first support is at 0.8724, and the next at 0.8669. Resistance exists first at 0.8866, and then at 0.8953.
Traders will keep a tab on real retail sales and industrial production data from Switzerland ahead in the week.
USD CAD
Last week, the USD traded 0.21% higher against the CAD and closed at 1.1087. At its policy meeting, the Bank of Canada left its benchmark interest rates on hold at 1.00%, in line with market expectations. The central bank indicated that the nation’s economic growth in the fourth quarter of 2013 was slightly stronger than anticipated and added that it still expects growth of 2.5% in 2014. However, the bank stated that inflation is expected to remain below its target for some time and the direction of the next change in the policy rate will be data dependent. In economic news, the value of building permits issued in Canada surged in January. The Ivey purchasing managers index rose to a reading of 57.2 in February. On Friday, the Statistics Canada reported that the economy lost 7,000 jobs in February, compared to expectations for a 15,000 rise, after a 29,400 increase recorded in January. Moreover, unemployment rate remained unchanged at 7.0% in February. A separate report revealed that Canada's trade deficit narrowed to C$0.18 billion in January, from C$0.92 billion in December. USDCAD traded at a high of 1.1119 and a low of 1.0952 in the previous week. The first support is at 1.0986, with the next at 1.0886. The first resistance is at 1.1153, while the next is at 1.1220.
With a light Canadian economic calendar this week, a slew of economic releases from the US will likely hold the key for determining the near term trend in the Canadian Dollar.
AUD USD
AUD traded 1.61% higher against the USD last week, and closed at 0.9068, following the release of upbeat domestic economic data and after the after the RBA Governor, Glenn Stevens indicated that he saw no reason to slash interest rates further. At its policy meeting, the Australian central bank maintained its key interest rate unchanged for a seventh successive month at 2.5% and indicated a period of stability in monetary policy, citing high inflationary pressures. In a post-decision statement, the Governor stated that the monetary policy is appropriate to boost sustainable growth in demand. In economic news, the Australian economy expanded faster than expected in the last three months of the year. The economy grew at a seasonally adjusted 0.8% in the December quarter, taking the annual growth rate to 2.8%. The total number of building approvals jumped a seasonally adjusted 6.8% (MoM) in January, while retail sales advanced 1.2%. Moreover, Australia’s merchandise trade surplus rose to A$1.4 billion in January, its best in two-and-a-half-years. During the week, the pair traded at a high of 0.9136 and a low of 0.8891. The first support is at 0.8927, and the next at 0.8787. The first resistance is at 0.9172, and the next at 0.9277.
Apart from external cues, traders would keep an eye on Australian economic data which includes unemployment rate, National Australia Bank's business confidence and Westpac’s consumer confidence data.
Gold
In the prior week, Gold traded 1.02% higher against the USD and closed at USD1339.98, as risk aversion prevailed during the week following the news of likely war between Russia and the Ukraine. However, gains in the precious metals were kept in check following the release of mostly positive economic data from the US during the last week. Tensions grew over weekend, following the news that Russia has suspended nuclear arms inspections treaty and blocked US military from checking nuclear weapons in response to US move to suspend military cooperation with Moscow. The yellow metal traded at a high of 1354.87 and a low of 1326.67 in the previous week. Gold is expected to find support at 1326.14 and the next at 1312.31. The first resistance is at 1354.34, while the next is at 1368.71.
In the week ahead, market participants will keenly await data from the US, especially the Reuters/Michigan consumer sentiment and retails sales report for hints on the strength of the nation’s recovery and the Fed’s future course of action for its monetary policy. Moreover, political developments in Ukraine will be closely watched for further cues.
Crude Oil
Oil prices traded flat against the USD in the last week and closed at USD102.58. However, prices remained supported by a combination of upbeat economic data in the US and escalating tensions in Ukraine’s Crimean peninsula. A surprisingly strong US jobs report on Friday bolstered optimism about the economy, raising hopes for strong oil demand from world’s largest economy. Moreover, geopolitical uncertainty from the Ukraine crisis escalated after the Russian President, Vladimir Putin ignored warnings from its US counterparts over Moscow's military intervention in Crimea. On the oil inventory front, the US Energy Information Administration reported the US crude oil inventories rose by 1.4 million barrels for the week ended February 28. Moreover, the American Petroleum Institute reported that US crude supplies rose by 1.2 million barrels during the similar period. Oil traded at a high of 105.22 and a low of 100.13 in the previous week. Oil has its first major support at 100.07, while the next support exists at 97.55. The first resistance is at 105.16, and the next at 107.73.
Traders would keep a watchful eye on the situation in the Ukraine, as any flare-up in the situations could send oil prices higher.
Happy pips.
