Weekly Forex Update
The minutes of the Federal Open Market Committee’s (FOMC) latest policy meeting took center stage last week and it influenced trading in currencies and commodities.
The US Dollar took a breather after the minutes of FOMC meeting revealed a more dovish stance than expected, prompting traders to shun the greenback. The minutes revealed that the Federal Reserve (Fed) policymakers were of the opinion that an interest rate hike would have to wait until 2015 or later. Additionally, officials unanimously agreed to scrap the 6.5% unemployment threshold for raising interest rates.
However, losses in the greenback were capped following the release of positive US economic data. The Thomson Reuters/Michigan consumer sentiment index rose in April to its highest level since July 2013, highlighting that the US consumers were more upbeat about the economy at start of the second quarter. Moreover, the number of Americans filing new claims for unemployment benefits fell sharply for the week ended April 5 to the lowest level since May 2007. Additionally, the monthly budget deficit narrowed more than expected in March.
The Euro jumped last week, as positive comments from few European Central Bank (ECB) officials helped ease traders’ concerns surrounding deflation risk in the bloc. The Bundesbank President and the ECB’s governing council member, Jens Weidmann downplayed deflation risk stating that the Euro-area’s risk of decline in consumer prices is low and any unconventional measures to avoid deflation would have to meet many conditions. Providing a further boost to investors risk appetite, reports indicated that Greece raised €3 billion in its first bond auction since 2010, sending a major signal that the Euro-zone debt crisis is fading.
The Pound gained traction following a spate of positive domestic macroeconomic data released last week that suggested that nation’s economic recovery is on track.
The Japanese Yen registered gains against the greenback, after the minutes of the Bank of Japan’s (BoJ) policy meeting revealed that the board members shared the view that the nation was on the path of economic recovery and that they were on the right track to counter deflation. The minutes further indicated that the policymakers did not see an imminent need for additional stimulus.
Commodity currencies including the Loonie, the Aussie and the Kiwi rose last week amid the broad dollar weakness.
The yellow metal recorded gains as traders snapped up the metal after the Federal Reserve's latest meeting minutes signaled that interest rates are unlikely to rise in the near future.
EUR USD
Last week, the EUR traded 1.31% higher against the USD and closed at 1.3885. The Euro began the week on a positive note, following comments from two eminent ECB officials, Ewald Nowotny and Yves Mersch, who stated that additional monetary easing measures are not imminent to fight low inflation in the region, citing that the strengthening economy could itself reduce the danger of deflation in the bloc. Moreover, another member, Jens Weidmann echoed similar views and indicated that he saw no risk of deflation spiral taking hold in the Euro-zone and further added that the pick-up in the bloc's economic recovery would eventually cause the inflation rate to gradually rise. The Euro further gained, after news that Greece successfully sold 5-year notes in the bond market. Additionally, the Fitch Ratings raised its outlook on Portugal to “Positive” from “Negative”, citing a falling budget deficit and sturdy economic recovery. During the week, the pair traded at a high of 1.3906 and a low of 1.3697. The pair is expected to find its first support at 1.3753, with the next support expected at 1.3620. The first resistance is at 1.3962 and the next at 1.4038.
Ahead this week, the Euro area inflation report will attract significant market attention along with industrial production and German ZEW sentiment data.
GBP USD
In the last week, GBP traded 0.95% higher against the USD and closed at 1.6733, as upbeat industrial and manufacturing output in the UK boosted investor sentiment, while UK’s trade deficit narrowed as imports fell more sharply than exports. Also, the Conference Board’s leading economic index rose in February, signaling that the recovery in the nation is set to continue in coming months. Moreover, the Britain’s economy got a double boost in the previous week. The National Institute of Economic and Social Research (NIESR) reported that the nation’s economy grew at its fastest quarterly rate since early 2010, in the first quarter of 2014. Also, the International Monetary Fund raised the country's growth forecasts and stated that the UK is set to be the world's fastest-growing major advanced economy in 2014. In an another key event, the Bank of England (BoE), kept its interest rate unchanged at a record-low 0.5%, citing a slack in the domestic labor market. The pair traded at a high of 1.6822 and a low of 1.6565 in the previous week. GBPUSD is expected to find its first support at 1.6591, with the next at 1.6450. Resistance exists first at 1.6848, and then at 1.6964.
In the week ahead, UK’s consumer price inflation and employment data would be crucial for determining short term trend in the Pound.
USD JPY
The USD traded 1.62% lower against the JPY and closed at 101.62 in the last week, following the release of the minutes from the Fed’s March 18-19 policy meeting that dampened expectations that the central bank would start raising its interest rates in the near future. Moreover, the Japanese Yen gained after the minutes of the BoJ’s latest policy meeting indicated that policymakers agreed that the Japanese economic recovery and inflation are moving in line with the central bank’s expectations and that the policy makers are unlikely to resort to further easing measures in the near term. Additionally, the minutes revealed that consumer spending would not decline following the sales tax hike in April, as the domestic labor market has shown the signs of improvement lately. The pair traded at a high of 103.35 and a low of 101.32. The pair is expected to find its first support at 100.84, with the next support expected at 100.07. The first resistance is at 102.87 and the next at 104.13.
Market participants would keep a tab this week on domestic industrial output and consumer sentiment data.
USD CHF
The USD backpedalled against the Swiss Franc, declining 1.79% last week to close at 0.8761, following the release of dovish Fed meeting minutes. The Swiss Franc gains came following the release of better-than-expected economic data in Switzerland. Annual consumer prices in the nation unexpectedly remained flat in March, providing relief to the Swiss National Bank policymakers as it indicated that the economy rebounded from deflationary pressures. Real retail sales grew 1.0% (YoY) in February, following a 0.1% decline in the previous month. Additionally, the State Secretariat for Economic Affairs (SECO) reported that on a non-seasonally adjusted basis, the unemployment rate in Switzerland dropped to 3.3% in March, in line with market expectations, compared to a rate of 3.5% reported in February. During the period, the pair traded at a high of 0.8925 and a low of 0.8742. The first support is at 0.8694, and the next at 0.8626. Resistance exists first at 0.8877, and then at 0.8992.
With a light economic calendar, Swissy traders would focus on global economic news for further guidance.
USD CAD
Last week, the USD fell marginally against the CAD and closed at 1.0980, as traders reduced their exposures in the safe currency after the latest FOMC minutes gave hints that policymakers are not inclined to adopt tighter monetary policy measures in the immediate future. The Canadian Dollar started the week on a positive note, after a survey by the Bank of Canada (BoC) indicated that the outlook for investment and employment in the nation firmed slightly in the first quarter of 2014. In a separate report, the Canadian housing starts fell more-than-expected in March, while building permits declined sharply in February, stoking fears over the health of the Canadian housing market. In noteworthy event, the IMF upgraded forecast for Canada’s economic growth for 2014, but cautioned about the nation’s weaker than expected exports, high household debt loads and high house prices which would affect the economic outlook. USDCAD traded at a high of 1.1011 and a low of 1.0857 in the previous week. The first support is at 1.0888, with the next at 1.0795. The first resistance is at 1.1042, while the next is at 1.1103.
This week, the Canadian inflation data will be on investors’ radar. Besides, interest rate decision by the BoC will likely hold the key for determining the near term trend for the Loonie.
AUD USD
AUD traded 1.13% higher against the USD last week, and closed at 0.9397, buoyed by strong domestic economic data. Unemployment rate in Australia fell to a seasonally adjusted 5.8% in March, from previous month’s level of 6.1% while the economy added 18,100, better than expectations for an addition of 5,000 jobs. Meanwhile, another report showed that consumer inflation expectations in Australia rose to 2.4% in April, the highest level since July last year. The Westpac consumer confidence index improved in April, while the National Australia Bank report revealed that nation’s business confidence dipped in March. During the week, the pair traded at a high of 0.9463 and a low of 0.9253. The first support is at 0.9279, and the next at 0.9161. The first resistance is at 0.9489, and the next at 0.9581.
Apart from key macro releases from the US this week, the Reserve Bank of Australia’s latest policy meeting minutes will be on investors’ radar. Additionally, the Chinese first quarter GDP and February’s retail sales and industrial production data would also prove a key determinant for the Aussie.
Gold
In the prior week, Gold traded 1.13% higher against the USD and closed at USD1318.42, after the Fed's latest meeting minutes signaled that policy makers were in no hurry to lift interest rates. Also, market speculation that China might resort to stimulus measures to lift its economy, following the recent spate of dismal economic data provided support to gold prices. Moreover, gold prices were underpinned by heightened geopolitical tension as Ukraine's government attempted to reassert control in the eastern city of Slaviansk, after pro-Russian separatists seized power. The yellow metal traded at a high of 1324.63 and a low of 1295.74 in the previous week. Gold is expected to find support at 1301.23 and the next at 1284.04. The first resistance is at 1330.12, while the next is at 1341.82.
In the week ahead, market participants will keenly await data from the US, especially the consumer price inflation and retail sales report for hints on the strength of the nation’s recovery. Moreover, speeches from influential Fed policymakers will be keenly awaited.
Crude Oil
Oil prices traded 2.57% higher against the USD in the last week and closed at USD103.74, amid broad weakness in the US Dollar and lingering tensions between Russia and the West over Ukraine. Moreover, oil prices also found some support after Libya’s oil protection force stated that it had not regained full control of the Zueitina oil port from the rebels. Also, the Energy Information Administration’s (EIA) monthly energy outlook report forecasted that crude average price would rise to $95.60 a barrel in 2014, compared to its previous forecast of $95.33. Moreover, the EIA trimmed its projections on the US crude production for 2014 and 2015. Meanwhile, the secretary general of the Organization of the Petroleum Exporting Countries (OPEC), Abdullah al-Badri, stated that current crude prices are stable and the market has ample supply to meet demand, signaling that existing output ceiling would remain in place at its June meeting. Oil traded at a high of 104.44 and a low of 99.92 in the previous week. Oil has its first major support at 100.96, while the next support exists at 98.18. The first resistance is at 105.48 and the next at 107.22.
Traders would keep an eye on the situation in the Ukraine, as any flare-up in the situations could send oil prices higher.
Happy pips.
