Weekly Forex Update
Safe haven buying was the theme of last week’s trading session which can partly be attributed to rising deflation concerns taking grip in the Euro-zone. Also, lukewarm data from the UK weighed on market sentiment, proving beneficial for the US Dollar.
Meanwhile, encouraging ADP employment figures and factory orders data in the US supported greenback’s rally. However, a separate report from the Department of Labor indicated that the US nonfarm payroll employment rose by 192,000 in March, lower than expectations for a 200,000 increase. Additionally, the number of Americans filing new claims for unemployment benefits rose more-than-expected last week, while trade deficit widened raising doubts whether the Federal Reserve’s (Fed) taper will remain on track.
Earlier in the week, the USD came under pressure, after the Fed President, Janet Yellen, defended the central bank’s easy monetary policies and indicated that they would continue with it for some more time, citing the slowing pace of domestic economic recovery in recent months and the still weak US labor market. Additionally, few prominent Fed policymakers reiterated that the central bank is in no rush to hike interest rates and indicated that further improvement in the US economy would be necessary to alter the Fed’s stance.
Meanwhile, dovish comments by the European Central Bank (ECB) President, Mario Draghi, played on traders mind as the Euro declined for the third consecutive week against the USD. The ECB left its benchmark interest rate unchanged at a record-low 0.25%, held its marginal lending rate at 0.75% and left its deposit facility rate unchanged at zero. The prevalent deflation worries surrounding the Euro-zone prompted traders to stay away from Euro.
The Pound failed to gain traction following a barrage of dismal economic data released last week in the UK. However, losses were capped as the Bank of England (BoE) Governor, Mark Carney, hinted at the possibility of the central bank embracing higher interest rates ahead of next year’s elections in the UK.
The Yen lost ground against the US Dollar as traders remained on sidelines amid lack of decisive domestic triggers and amid speculation that the Bank of Japan (BoJ) would endorse its neutral policy stance to achieve the 2% target for inflation.
The Aussie managed to hold its ground against the USD, after the Reserve Bank of Australia (RBA) left interest rate unchanged and as the Governor, Glenn Stevens, sounded optimistic about the Australian economy.
EUR USD
Last week, the EUR traded 0.34% lower against the USD and closed at 1.3705, as the ECB President, Mario Draghi reiterated his dovish stance at the central bank’s policy meeting. He indicated that central bank’s governing council was “unanimous” in its commitment to use all unconventional instruments within its mandate to fight deflation threat and added that the board members also discussed the possibility of negative deposit rates. Moreover, the Organization for Economic Cooperation and Development (OECD) cautioned that deflation risks in the block have risen and urged the central bank to keep its interest rates at near zero over the medium term. On the economic front, inflation in the Euro-zone hit its lowest level since November 2009 in March, while services PMI fell more than preliminary estimates. The upbeat retail sales, unemployment rate and fourth quarter GDP in the Euro-zone and better-than-expected factory orders and manufacturing PMI data in Germany failed to provide necessary fillip to the common currency. During the week, the pair traded at a high of 1.3821 and a low of 1.3672. The pair is expected to find its first support at 1.3644, with the next support expected at 1.3584. The first resistance is at 1.3793 and the next at 1.3882.
Ahead this week, market participants will keep an eye on Euro-zone investor confidence and German industrial production, although talks of deflation in the bloc would continue to dominate market sentiment.
GBP USD
The GBP declined 0.38% against the USD last week and closed at 1.6575, as manufacturing PMI in the UK fell to an 8-month low reading of 55.3 in March, while services PMI recorded a 9-month low reading of 57.6. Also mortgage approvals eased in February, while consumer credit remained largely stagnant. However, losses were limited, as the BoE chief, Mark Carney, refused to rule out a rise in interest rates that could be implemented before the next general election in the UK. He did not hint at the specific timing of possible rate hikes, however indicated that interest rates would only rise when the economy was performing closer to full capacity and that hike in interest rate would be “gradual”. The pair traded at a high of 1.6686 and a low of 1.6554 in the previous week. GBPUSD is expected to find its first support at 1.6524, with the next at 1.6473. Resistance exists first at 1.6656, and then at 1.6737.
In the week ahead, the BoE policy meeting will generate significant market interest, as traders will keep a close watch for hints about change in the central bank’s policy stance.
USD JPY
The USD traded 0.45% higher against the JPY over the past week, closing at 103.29. The Japanese Yen came under pressure after a survey report by the BoJ on Wednesday indicated that Japanese companies and consumers were less optimistic about the central bank achieving its 2% inflation target by 2015, especially in the wake of the 3% sales tax hike that came into effect from April 1. Meanwhile, the Japanese Finance Minister, Taro Aso on Friday commended the BoJ’s aggressive monetary easing policy and indicated that it has enabled the nation to boost its consumer inflation rate and drive economic growth. In key economic news, the Tankan large manufacturing index rose less-than-expected to a reading of 17.0 in the first quarter of 2014, while the Tankan large manufacturing outlook declined more-than-expected to a reading of 8.0. The pair traded at a high of 104.14 and a low of 102.78. The pair is expected to find its first support at 102.67, with the next support expected at 102.04. The first resistance is at 104.03 and the next at 104.76.
Ahead this week, the outcome of the BoJ’s monetary policy meeting, will prove crucial for the Japanese Yen in the near term.
USD CHF
USD traded 0.60% higher against the CHF and closed at 0.8921 in the last week. The Swiss Franc declines came following the release of some uninspiring economic data in Switzerland. The SVME manufacturing activity expanded in March at the slowest pace since June last year. The PMI fell to a reading of 54.4 from 57.6 in February. Another report revealed that a leading indicator for the Swiss economy eased in March to hit a two-month low. The KOF Economic Barometer slipped to a reading of 1.99 in March from 2.03 recorded in the previous month. A separate survey for the Swiss economy by the Centre for European Economic Research (ZEW) revealed that economic expectations weakened for the third consecutive month in March. During the period, the pair traded at a high of 0.8954 and a low of 0.8814. The first support is at 0.8839, and the next at 0.8756. Resistance exists first at 0.8979, and then at 0.9036.
Apart from external cues, traders would keep an eye this week on Swiss economic data which includes consumer price inflation, real retail sales and unemployment rate.
USD CAD
Last week, the USD traded 0.72% lower against the CAD and closed at 1.0981. The Canadian Dollar advanced following the release of mostly better-than-expected economic data from Canada. Data revealed that Canada’s economy rebounded, from a drop in December, at a faster-than-expected pace in January. Additionally, nation’s merchandise trade balance swung to a surplus in February. A separate report showed that the economy added 42,900 jobs in March, exceeding market expectations for a 21,500 rise and after a 7,000 decline in February. Also, unemployment rate declined to 6.9% in March, from 7.0% in February. However, the Loonie came under pressure on Friday, after the Canadian Ivey PMI recorded a drop in March. USDCAD traded at a high of 1.1072 and a low of 1.0956 in the previous week. The first support is at 1.0934, with the next at 1.0887. The first resistance is at 1.1050, while the next is at 1.1119.
Ahead in the week, traders would focus on the Canadian housing data and a survey report on business outlook by the Bank of Canada.
AUD USD
AUD traded 0.49% higher against the USD last week, and closed at 0.9292. The RBA kept its key interest rate unchanged at 2.5% and indicated that the rates are likely to remain stable at current low levels for a considerable period of time. Moreover, the RBA Governor, Glenn Stevens, indicated that business and consumer sentiment have shown improvement of late and that exports have also been on an uptrend. In economic news, Australia recorded a seasonally adjusted merchandise trade surplus of A$1.2 billion in February, surpassing analyst forecasts for a surplus of A$850 million following the downwardly revised surplus of A$1.392 billion in January. During the week, the pair traded at a high of 0.9310 and a low of 0.9205. The first support is at 0.9228, and the next at 0.9164. The first resistance is at 0.9333, and the next at 0.9374.
Investors will keep a tab on the Westpac consumer confidence, National Australia Bank's business confidence and the Australian employment data ahead this week.
Gold
Gold ended the week on a positive note, rising 0.65% against the USD to close at 1303.64, amid hopes that China will implement economic stimulus measures in the near-term to shore up slowing growth. Price for the yellow metal also got a boost from bargain hunters, who took advantage of the recent retreat in the precious metal and increased their exposure amid speculation that physical demand would strengthen. Also, the much-awaited monthly nonfarm report showed that the US economy created fewer jobs than expected last month. The March nonfarm payrolls increased by 192,000 in March, versus expectations for gains of 200,000. However, sentiments towards the precious metal remained under pressure, hurt by the decline in the bullion holdings by the SPDR Gold Trust exchange-traded fund. A leading broking house projecting a further downturn in gold prices added to the negative sentiment. The yellow metal traded at a high of 1307.30 and a low of 1276.98 in the previous week. Gold is expected to find support at 1284.65 and the next at 1265.65. The first resistance is at 1314.97, while the next is at 1326.29.
In the forthcoming week, minutes of the Fed’s latest monetary policy meeting will be crucial for determining near term trend in the precious metal. Also, speeches from influential Fed policymakers will offer insights about the central bank’s future course of action.
Crude Oil
Oil prices traded 0.44% lower against the USD in the last week and closed at USD101.14, hurt by a mixed batch of Chinese manufacturing PMI data. The lackluster manufacturing data released last week in the US and the Euro-zone also weighed on oil prices. Oil price also came under pressure, after reports showed that an eight-month blockage of Libya's oil export ports would end after rebels and the government stated that they were close to an agreement. However, the losses were kept in check after the American Petroleum Institute (API) reported that US crude supplies dropped 5.8 million barrels for the week ended March 28, missing analysts' expectations for an increase of 1.1 million barrels. Also, the Energy Information Administration reported that US crude supplies fell 2.4 million barrels, against expectations for an increase of 1.8 million barrels. Oil traded at a high of 101.97 and a low of 98.86 in the previous week. Oil has its first major support at 99.34, while the next support exists at 97.55. The first resistance is at 102.45 and the next at 103.77.
In the week ahead, a slew of important economic releases in the US along with the Federal Reserve meeting minutes will be watched closely for cues to further direction. Additionally, monthly reports from the International Energy Agency and the Organization of the Petroleum Exporting Countries due later in the week will also be crucial.
Happy pips.
