Weekly Forex Update
In the past week, the greenback ended mixed against its key peers, as prospects of a yet another reduction in the monthly asset purchases by the US Federal Reserve (Fed) when it meets for its policy meeting during this week was offset by a mixed bag of macroeconomic data.
New home sales in the US fell significantly in the last month, while the Markit manufacturing Purchasing Managers’ Index (PMI) deteriorated unexpectedly in April. Also, weekly initial jobless benefits disappointed market participants. However, durable goods orders rose more than expected in March, whereas the University of Michigan consumer sentiment improved in April.
In a key development, DBRS upgraded its outlook on the US economy’s “AAA” sovereign ranking to “stable” from “negative.” This week assumes much importance for the investors as the Fed’s policy meeting and the US nonfarm payrolls data would keep them on tenterhooks.
ECB President, Mario Draghi, drew attention to the rising strength of the shared currency and the persistent low inflation and added that these may be the reasons which might trigger the necessity to introduce a bond buying programme. Meanwhile, positive macroeconomic data from Germany and Euro-zone provided support to the Euro.
The Pound continued to trade higher against the USD, helped by upward revisions to the nation’s growth outlook by the Bank of England (BoE) and the Centre for Economics and Business Research (CEBR). Meanwhile, the minutes of the BoE’s latest policy meeting revealed that the policymakers were uncertain about the amount of economic slack in the UK.
The JPY found support, after a report indicated that Japanese inflation continued to inch closer towards the Bank of Japan’s (BoJ) 2% inflation target. Meanwhile, the BoJ Governor opined that nation’s consumer price inflation for the fiscal year ending March 2014 might have exceeded the central bank’s expectations. He reiterated that the central bank would not hesitate to adjust its monetary policy if risks emerge to its inflation target.
The Swiss National Bank (SNB) Chairperson, Thomas Jordan opined that the Swiss Franc still remains considerably strong and that its cap is an important tool to avoid the deflationary pressures in the country.
The Loonie lost ground after the Bank of Canada’s (BoC) Governor, Stephen Poloz stated that interest rates in the nation may remain low for years to come even after the Canadian economy returns to full capacity.
The Aussie inched lower, on the back of slower-than-expected rise in Australia’s consumer price inflation in the first quarter. Moreover, a fourth straight contraction in manufacturing activity in the country’s major trading partner, China, also weighed on the Aussie.
EUR USD
Last week, the EUR traded 0.15% higher against the USD and closed at 1.3834, as the release of encouraging macroeconomic data provided upbeat assessment for the growth prospects of the Euro bloc. Manufacturing and services activity in Eurozone and Germany improved in April, whereas consumer confidence in the Euro area and German IFO business climate indicator improved unexpectedly in the same period. However, comments by the ECB Chief, Mario Draghi which hinted that the strength in the Euro might compel the central to resort to additional easing measures limited the gains in the common currency. In a key development, the IMF lifted its growth outlook for Portugal. However, it also cautioned that the country still faces several economic challenges. During the week, the pair traded at a high of 1.3856 and a low of 1.3784. The pair is expected to find its first support at 1.3793, with the next support expected at 1.3753. The first resistance is at 1.3865, and the next at 1.3897.
Euro traders are expected to remain busy during this week amid a barrage of macroeconomic data from Germany, Euro-zone and its periphery economies.
GBP USD
In the last week, GBP traded 0.05% higher against the USD and closed at 1.6803, after the BoE and CEBR lifted their growth forecast for the UK. Positive sentiment was also fuelled after the Confederation of British Industry (CBI) reported a faster-than-expected rise in realized retail sales in April. Meanwhile, one of the leading executives of the CBI indicated that data suggests the presence of economic optimism in the UK. Furthermore, an unexpected rise in the UK’s retail sales data also provided support to the Sterling. The minutes of BoE’s latest policy meeting revealed no signs of a hike in interest rates in the foreseeable future, as policymakers remained divided about their views of the amount of slack in the economy and the near-term inflation. The pair traded at a high of 1.6840 and a low of 1.6762 in the previous week. GBPUSD is expected to find its first support at 1.6763, with the next at 1.6724. Resistance exists first at 1.6841, and then at 1.6880.
During this week, UK’s growth data would remain on the radar of market participants, as it would help them to gauge the grip of the economic recovery in the nation. Also, British consumer confidence and manufacturing activity data would help in determining the trend in the Sterling.
USD JPY
The USD traded 0.26% lower against the JPY over the past week, closing at 102.16. The JPY found support after the Japanese consumer price inflation inched closer towards the central bank’s threshold rate, highlighting continuous progress to achieve its 2% inflation target. During the week, the BoJ Governor opined that nation’s consumer price inflation for the fiscal year ending March 2014 might have exceeded the central bank’s expectations, and that the central bank remained steadfast on its path to achieve its price stability target. Separately, the central bank’s Deputy Governor stated that the nation was strong enough to withstand a rise in the sales tax. On the data front, trade deficit widened more than expected in March, whereas, the Japanese leading economic and coincident index deteriorated in February. The pair traded at a high of 102.74 and a low of 101.96. The pair is expected to find its first support at 101.83, with the next support expected at 101.51. The first resistance is at 102.61, and the next at 103.07.
Ahead in this week, Japan is expected to release its unemployment, housing, retail, industrial production and manufacturing activity data.
USD CHF
USD traded 0.19% lower against the CHF and closed at 0.8818 in the last week. On the economic front, the Swiss Federal Customs Administration reported that the nation’s trade surplus narrowed more than market expectations. SNB Chairman, Thomas Jordan, opined that the currency cap remained a crucial policy tool to check the strength of the currency and added that it would also help the nation to fend off a deflationary environment. During the period, the pair traded at a high of 0.8863 and a low of 0.8802. The first support is at 0.8792, and the next at 0.8767. Resistance exists first at 0.8853, and then at 0.8889.
Apart from the global macroeconomic data points, Swiss Franc traders are expected to keep a close tab on the Swiss manufacturing activity, leading indicator and consumption indicator data.
USD CAD
Last week, the USD traded 0.14% higher against the CAD and closed at 1.1039. The Loonie lost ground, after the BoC Governor, Stephen Poloz opined that the interest rates in the nation are expected to remain at low levels even after the Canadian economy shows concrete signs of improvements. Data released during the past week revealed that, wholesale sales and retail sales in Canada advanced higher than analysts’ expectations in February. USDCAD traded at a high of 1.1055 and a low of 1.0997 in the previous week. The first support is at 1.1006, with the next at 1.0972. The first resistance is at 1.1064, while the next is at 1.1088.
During the week, the direction of the Loonie would be largely influenced by the nation’s gross domestic product report and its manufacturing activity data.
AUD USD
AUD traded 0.56% lower against the USD last week, and closed at 0.9281, as the Australian consumer price index rose at a slower pace in the first quarter. The Aussie also came under pressure, after the Chinese manufacturing activity data remained in contraction territory for four consecutive months. In other economic news, the Conference Board’s leading indicator in Australia perked up 0.3% in February. During the week, the pair traded at a high of 0.9380 and a low of 0.9250. The first support is at 0.9227, and the next at 0.9174. The first resistance is at 0.9357, and the next at 0.9434.
Aussie traders would focus on the nation’s housing market data to be released during the week. Moreover, the final Chinese manufacturing and services activity data would also attract market attention.
Gold
In the prior week, Gold traded 0.69% higher against the USD and closed at USD1303.20, as lingering geopolitical tensions in Ukraine provided support to the yellow metal. Moreover, physical buying in China coupled with discouraging US initial jobless claims and factory activity data also increased the demand for the safe haven asset. However, upbeat US consumer sentiment data and durable goods orders data kept the gains in the yellow metal under check. Separately, holdings in the largest gold-backed ETF, SPDR Gold Trust, continued to decline in the past week, signaling the persistent headwinds in the outlook for the yellow metal. The yellow metal traded at a high of 1305.07 and a low of 1268.67 in the previous week. Gold is expected to find support at 1279.56 and the next at 1255.91. The first resistance is at 1315.96, while the next is at 1328.71.
The Fed’s interest rate decision and its monetary policy statement are expected to be the key price determinants this week, as another reduction in the size of the bond purchases would further weigh on gold prices. Meanwhile, investors are also expected to keep a close watch on the developments in Ukraine.
Crude Oil
Oil prices traded 3.54% lower against the USD in the last week and closed at USD100.60, as release of mixed bag of domestic data in the US weighed on the demand prospects for the crude oil. Moreover, third straight contraction in Chinese manufacturing activity data also weighed on crude oil prices. The fall in the crude oil prices was also contributed by a report from the Energy Information Administration which indicated the fastest rise in the US crude oil inventories in more than eighty years during the week ended April 18. Separately, the American Petroleum Institute reported a 519,000 barrels rise in the US crude oil stockpile during the same period. However, persistent geopolitical tensions between Russia and Ukraine provided some support to the commodity’s price. Oil traded at a high of 104.77 and a low of 100.48 in the previous week. Oil has its first major support at 99.13, while the next support exists at 97.66. The first resistance is at 103.42, and the next at 106.24.
Going forward, crude oil traders would weigh the developments in Eastern Europe, to gauge the trend in the commodity. Moreover, US non-farm payrolls would also be a key report on traders’ radar.
Good trades.
