Weekly Forex Update
For the week ended March 21, the US Dollar registered gains against its key peers, after the Federal Reserve (Fed) in its policy meeting, trimmed the size of its stimulus package by another $10 billion to $55 billion a month. Moreover, the Fed President, Janet Yellen hinted to an earlier-than-expected hike in the nation’s key interest rate by the mid of 2015. Positive sentiment for the greenback was also supported, after the Fed, in its annual test report of big banks' financial health, indicated that 29 out of the 30 major banks in the nation met the minimum hurdle to withstand a severe economic downturn.
Upbeat US economic data released during the week also boosted the USD. Initial jobless claims in the US increased to 320,000 for the week ended March 14, less than analysts’ expectations for a rise to 322,000. The US Conference Board's index of leading indicators rose more-than-forecast 0.5% in February, while the Philadelphia Fed's manufacturing index rebounded in March. Industrial production rose more-than-expected 0.6% (MoM) in February. Additionally, building permits rose more-than-expected in February, while consumer prices in the US rose 0.1% in February, in line with analysts’ projections.
Striking an upbeat note, the Fitch Ratings on Friday maintained its “AAA” ratings on the US and “stable” outlook on the country's ratings, dismissing concerns over a possible downgrade in March. However, risk sentiment took a hit after major rating agencies including Standard and Poor's and Fitch trimmed their outlook on Russia, reflecting concerns over the potential impact of the sanctions by the US and the European Union on the country after its controversial takeover of the Ukraine's autonomous region of Crimea.
The Euro backpedalled last week against the greenback, following the release of lackluster economic data from the Euro-zone. The consumer price inflation eased unexpectedly in February, raising fears of deflation in the bloc and adding pressure on the European Central Bank’s (ECB) to undertake further measures to support the region’s fragile economic recovery.
Meanwhile, despite the release of positive economic data from the UK, the Pound registered losses against most of its major peers. The CBI industrial orders survey report showed that the UK factory orders rose higher-than-expected in March, while the domestic public finances report revealed that government borrowings climbed in February. Also, number of people claiming jobless benefits declined in February.
The Loonie advanced on Friday, boosted by upbeat domestic retail sales, which rose above market expectations in January, while another report showed that Canadian inflation was higher-than-expected in February, reducing expectations of any cut in interest rates.
EUR USD
Last week, the EUR traded 0.86% lower against the USD and closed at 1.3794, after economic data from the Euro-zone and Germany disappointed investors, fuelling concerns over the economic outlook for the region. The ZEW economic sentiment index in Germany dropped to a seven-month low level of 46.6 in March, while the economic sentiment index in the Euro-zone declined to a level of 61.5. Adding to negative sentiment, consumer price inflation in the Euro-zone rose less than initially estimated in February, underlining concerns over the threat of deflation in the region. Moreover, the ECB Executive Board member, Sabine Lautenschlaeger, indicated that the interest rates would remain at current low level or go even lower for an extended period, until the economic condition in the region improves to a proper level. However, on Friday the Euro rose after consumer confidence in the bloc showed an improvement in March, while current account surplus expanded in January. During the week, the pair traded at a high of 1.3949 and a low of 1.3748. The pair is expected to find its first support at 1.3712, with the next support expected at 1.3629. The first resistance is at 1.3913 and the next at 1.4031.
Traders are expecting significant action ahead in the week in Europe wherein manufacturing and services PMI from major economies are set to release. Additionally, consumer confidence and inflation data from Germany is also expected to garner market interest.
GBP USD
In the last week, GBP traded 0.97% lower against the USD and closed at 1.6486, despite the release of mostly upbeat domestic economic data in the UK, as market participants were mainly influenced by the US Fed Chief, Janet Yellen’s comments over a possible hike in interest rates in a year’s time. Meanwhile, persistent Ukrainian concerns continued to weigh on the GBP. However, losses were capped as the UK Chancellor of the Exchequer, George Osborne while presenting the UK budget for fiscal year 2014-15, indicated that the UK economy will register more-than-expected growth in 2014 and that the nation was on track to make a strong recovery. The minutes of the BoE meeting released during the week indicated that policymakers unanimously voted to retain the interest rate at 0.50% and quantitative easing at £375 billion. The pair traded at a high of 1.6668 and a low of 1.6475 in the previous week. GBPUSD is expected to find its first support at 1.6418, with the next at 1.6350. Resistance exists first at 1.6611, and then at 1.6736.
Later this week, investors have their plate full with a raft of economic data including retail sales and housing data from the UK. Additionally, February’s inflation and fourth quarter growth data will be closely scrutinized for ascertaining near term trend in the GBP.
USD JPY
The USD traded 0.88% higher against the JPY over the past week, closing at 102.25, as investors favored the greenback in wake of Federal Reserve Chair, Janet Yellen's comments on Wednesday, where she hinted that interest rate hikes were possible around the first half of 2015. Meanwhile, the Japanese Yen traded on a weaker footing after data showed that the nation’s trade deficit narrowed less-than-forecast in February. Moreover, the Bank of Japan Governor, Haruhiko Kuroda, reiterated that the central bank is on the path to achieve its 2% price stability target and will continue to monitor risks and alter policy appropriately to attain the same. However, the BoJ policymaker, Takahide Kiuchi cautioned that side effects of further monetary easing would outweigh the positive effects and that would undermine economic stability in the long run. The pair traded at a high of 102.70 and a low of 101.27. The pair is expected to find its first support at 101.45, with the next support expected at 100.65. The first resistance is at 102.88 and the next at 103.50.
The Japanese Yen is expected to take further cues from the release of the consumer price index, unemployment rate and retail trade data from Japan, along with news flows emanating from both sides of the Atlantic and developments in Eastern Europe.
USD CHF
USD traded 1.20% higher against the CHF and closed at 0.8829 in the last week. The Swiss Franc came under pressure, after the Swiss National Bank (SNB) President, Thomas Jordan, indicated that the market’s perception of Swiss Franc as a safe-haven currency poses a big challenge for monetary policy in the nation. Furthermore, he indicated that, despite the recent economic progress, the nation still remains far away from a full recovery. At its policy meeting, the SNB maintained status quo with regards to its monetary policy, leaving its benchmark interest rate unchanged at 0.0-0.25%. Additionally, the SNB reinforced its cap on the Swiss Franc, citing that the currency remains strong and risks to global economic recovery continue to persist. Furthermore, the SNB lowered its inflation outlook for the nation, projecting that prices will stagnate for 2014 before climbing 0.2% for 2015. Meanwhile, the State Secretariat for Economic Affairs (SECO) lowered the growth outlook for Swiss economy marginally for 2014, while maintaining the estimate for 2015. Additionally, the ZEW economic expectations for Switzerland weakened for the third consecutive month in March. During the period, the pair traded at a high of 0.8870 and a low of 0.8714. The first support is at 0.8739, and the next at 0.8648. Resistance exists first at 0.8895, and then at 0.8960.
With little of note on the domestic economic calendar, investors will keep a tab on global news flows for further direction.
USD CAD
Last week, the USD traded 1.04% higher against the CAD and closed at 1.1221, after the US Fed chief, Janet Yellen earlier during the week outlined a schedule that Fed might hike interest rates around six months after the central bank wraps up its asset purchases programme. Meanwhile, the Canadian Dollar came under pressure, after the Bank of Canada Governor, Stephen Poloz hinted at potential weakness in the Canadian economy in the first quarter of the year and did not rule out an interest rate cut. However, the Loonie rallied on Friday after the release of upbeat Canadian inflation and retail sales data. The core consumer price index (CPI) rose 0.7% (MoM) in February, exceeding expectations for a 0.5% gain, after a 0.2% gain the previous month. The CPI in Canada rose 0.8% last month, compared to an expectation for a 0.6% increase, after a 0.3% uptick in January. A separate report showed that retail sales in Canada rose more-than-expected 1.3% (MoM) in January, from downwardly revised 1.9% fall in December. USDCAD traded at a high of 1.1280 and a low of 1.1024 in the previous week. The first support is at 1.1070, with the next at 1.0919. The first resistance is at 1.1326, while the next is at 1.1431.
With no major domestic data scheduled for release during the week, the CAD is expected to closely track economic releases from the US and Europe for clarity on risk appetite among market participants.
AUD USD
AUD traded 0.59% higher against the USD last week, and closed at 0.9081. However, gains were capped as the minutes of the RBA’s March policy meeting revealed that the policymakers reiterated their stance to maintain record-low interest rates to support growth. With respect to currency levels, the RBA officials indicated that the drop in the Australian Dollar had helped the economy achieve balanced growth, but added that the “exchange rate remained high by historical standards”. Moreover, concerns about the Crimean referendum and sanctions imposed by the European Union and US on Russia further weighed on investors risk appetite. In economic news the Conference Board reported that its economic index for growth advanced 0.2% (MoM) in January, down from the upwardly revised 0.9% gain in December. A separate report by the Westpac and the Melbourne Institute showed that Australia's leading economic index declined sharply in February. During the week, the pair traded at a high of 0.9140 and a low of 0.8995. The first support is at 0.9004, and the next at 0.8927. The first resistance is at 0.9149, and the next at 0.9217.
The RBA’s financial stability review report and the speeches by the central bank’s Governor and Deputy Governor is expected to remain on investors’ radar this week.
Gold
In the prior week, Gold traded 3.50% lower against the USD and closed at USD1334.70, snapping its six-week rally, after the Federal Open Market Committee (FOMC) meeting hinted at an earlier-than-expected interest rate hike. Moreover, in line with expectations, the Fed further trimmed its monthly purchases by an additional $10 billion at its policy meeting. Meanwhile, the greenback also advanced on mostly upbeat US economic data and after Fitch Ratings affirmed US long-term foreign and local currency credit ratings at “AAA” with a “Stable” outlook. The yellow metal traded at a high of 1388.56 and a low of 1320.57 in the previous week. Gold is expected to find support at 1307.33 and the next at 1279.95. The first resistance is at 1375.32, while the next is at 1415.93.
Traders would focus on economic data from the US and events unfolding standoff between Russia and West for further guidance to yellow metal prices ahead this week.
Crude Oil
Oil prices traded 0.58% higher against the USD in the last week and closed at USD99.46, as traders continued to monitor events in the Eastern Europe, after Crimea’s vote to join Russia and the US and European Union’s sanction against Russia raised concerns over a disruption to supplies. However, gains were capped as lingering concerns on rising US crude stockpiles weighed on the demand prospect of the commodity. The Energy Information Administration reported a more-than-expected rise of 5.9 million barrels in the US crude stockpiles for the week ended March 14. Analysts had expected a rise of 2.6 million barrels in the US crude stockpiles. Earlier, the American Petroleum Institute reported that the crude inventories rose 5.9 million barrels for the similar period, more than double what traders forecasted. Moreover, the Fed in its monthly policy meeting gave an optimistic outlook for the US economy and further stated that there is sufficient underlying strength in the broader economy for it to keep tapering. Oil traded at a high of 100.82 and a low of 97.37 in the previous week. Oil has its first major support at 97.61, while the next support exists at 95.77. The first resistance is at 101.06 and the next at 102.67.
Ahead in the week, investors will keep a tab on US data from the housing sector, as well as reports on consumer confidence and durable goods to further gauge the strength of the economy.
Happy pips.
