Weekly Forex Update
The greenback traded on a firm footing last week, amidst geopolitical concern emanating from Ukraine and following the release of mostly positive US economic data.
Economic data indicated that the US housing numbers for April came in better-than-expected, highlighting that housing market demand has increased. The number of people filing for jobless benefits dropped to a seven year low in the week ended May 10, highlighting strength in the US labor market. Additionally, the NIFB small business optimism index advanced to its highest level since the financial crisis and the New York manufacturing index improved significantly in May. In a separate release, the US consumer price inflation rose to a 10 month high in April.
However, consumer sentiment unexpectedly deteriorated in May. The US retail sales growth also slowed in April, although it rose for the third consecutive month. The Philadelphia-area manufacturing sector activity expanded for the third consecutive month in May, although the reading fell compared to the previous month. Going ahead this week, the FOMC minutes will hold key as USD traders awaited fresh cues for further direction.
The Euro declined against the greenback, as disappointing growth data in the Euro-zone played on traders’ mind. Additionally, the bloc’s annual rate of inflation was in line with expectations at 0.7% in April, but still well below the European Central Bank’s (ECB) target of 2%, raising hopes of further ECB monetary action.
The Pound came under pressure, after the Bank of England (BoE) suppressed rising speculation of an early rise in interest rates to rein in the economy. The BoE Governor surprised market participants with a more dovish stance, insisting that economic conditions still warrant record low interest rates for some time.
The Yen rose against the US dollar, after the Japanese economy regained momentum in the first quarter of 2014. The nation’s GDP grew at a seasonally adjusted annual rate of 5.9%, as consumers shopped heavily before the planned sales tax increase comes into effect.
The Australian Dollar fell marginally, while the Loonie rose against the greenback last week. In New Zealand, the nation’s central bank in its half yearly financial stability report indicated that the financial system of the country remains sound and well placed to support the economy. However, the Governor, Graeme Wheeler cautioned that country’s house prices remained overvalued and that further policy tightening might depend on the strength of the Kiwi Dollar.
EUR USD
Last week, the EUR traded 0.47% lower against the USD and closed at 1.3694, after weak growth data from the Euro-zone and the member countries dented investor sentiment, adding pressure on the ECB to take additional steps to stimulate the recovery. Consumer prices data confirmed that inflation in the region remained significantly lower than the ECB’s benchmark target. Also, weaker-than-expected Euro-zone and German economic sentiment report prompted traders to move away from the Euro. Moreover, dovish comments from the Bundesbank President, Jens Weidmann, that the German central bank would support the ECB’s decision to unveil fresh policy measures to combat low inflation in the region, also proved a dampener for the single currency. This even as German economy expanded at a faster than anticipated pace. During the week, the pair traded at a high of 1.3776 and a low of 1.3648. The pair is expected to find its first support at 1.3636, with the next support expected at 1.3578. The first resistance is at 1.3764, and the next at 1.3834.
Ahead this week, manufacturing and services PMI data from Europe will be on traders’ radar for gauging any signs of improvement in the region. Market participants would also focus on first quarter growth data from Germany.
GBP USD
In the last week, GBP traded 0.24% lower against the USD and closed at 1.6811, after the BoE Governor indicated that that Britain’s economic recovery is still in its early stages of recovery and does not warrant any immediate hike in interest rates. In its quarterly inflation report, the BoE lowered its expectations for unemployment in the nation while maintaining its growth forecast for the UK economy in 2014. Negative sentiment also fuelled after the nation’s jobless claims fell by 25,100 in April, versus market expectations for a drop of 30,000 and average wages excluding bonus registered a less-than-expected rise of 1.3% in the first quarter of 2014. However, the ILO unemployment rate in the UK declined to a five-year low level of 6.8% in the three months to March. The pair traded at a high of 1.6904 and a low of 1.6731 in the previous week. GBPUSD is expected to find its first support at 1.6727, with the next at 1.6642. Resistance exists first at 1.6900, and then at 1.6988.
In the week ahead, investors have their plate full with a raft of economic data including UK consumer price index, retail sales and first quarter GDP data. Additionally, minutes of the BoE’s latest monetary policy meeting will also gain market attention for gauging policymakers’ outlook towards the economy.
USD JPY
The USD traded 0.35% lower against the JPY over the past week, closing at 101.50. The Yen started the week on a negative note, after nation’s current account surplus narrowed, while trade deficit widened significantly in March, raising concerns over the economic recovery in the world’s third largest economy. On Wednesday, the Yen advanced after the nation’s GDP jumped by an annualized rate of 5.9% in the first quarter of 2014. However, consumer confidence fell for the fifth consecutive month in April. The domestic currency rose marginally on Friday, after data showed that industrial production in Japan gained more than market estimates in March, while capacity utilization also rose. During the week, the BoJ Governor, Haruhiko Kuroda, reiterated that the Japanese economy is on track to achieve its 2% inflation target. The pair traded at a high of 102.38 and a low of 101.31. The pair is expected to find its first support at 101.08, with the next support expected at 100.66. The first resistance is at 102.15, and the next at 102.80.
Yen traders are expected to remain busy this week, amid a barrage of domestic macroeconomic data including machinery orders, trade balance, leading economic and coincident indicators. Separately all eyes would also be on the Bank of Japan’s interest rate decision.
USD CHF
USD traded 0.71% higher against the CHF and closed at 0.8927 in the last week, as positive US economic data supported the greenback. In Swiss economic news, Switzerland’s real retail sales rose at an annualized rate of 3.0% in March, surpassing expectations for a 2.3% gain and compared to a revised gain of 1.2% in February. Moreover, the ZEW survey on the economic expectations for the Swiss economy rose to a level of 7.4 in May, less than market expectations for a rise to a reading of 10.0. During the period, the pair traded at a high of 0.8961 and a low of 0.8857. The first support is at 0.8869, and the next at 0.8811. Resistance exists first at 0.8973, and then at 0.9019.
With a light economic calendar, Swissy traders would focus on global economic news for further guidance.
USD CAD
Last week, the USD traded 0.34% lower against the CAD and closed at 1.0861. During most the week, the Canadian Dollar was under pressure, after the Bank of Canada Deputy Governor, Lawrence Schembri, reiterated the central bank's stance that interest rates in the nation are likely to remain relatively low for an extended period of time to push inflation upward to its 2% target. Also, better-than-expected US data highlighted that the nation’s economy continues to recover at a steady pace in the second quarter of 2014, boosting the greenback. However, the Loonie recouped its losses on Friday, as crude oil, Canada’s largest export, rose on mounting tensions in Ukraine and amid concerns over possible oil supply disruptions from Libya. Also, deterioration in the US consumer sentiment weighed on the greenback. USDCAD traded at a high of 1.0928 and a low of 1.0849 in the previous week. The first support is at 1.0831, with the next at 1.0800. The first resistance is at 1.0910, while the next is at 1.0958.
This week, the Canadian retail sales data will be on investors’ radar. Besides, inflation reports from Canada would likely hold the key for determining the near term trend for the Loonie.
AUD USD
AUD traded marginally lower against the USD last week, and closed at 0.9360. Uninspiring data from its largest trading partner, China kept a tight lid on the Aussie. Industrial production and retail sales growth in China eased in April, while new lending remains below market expectations, giving strong signals that the nation may struggle to achieve its growth target in 2014. In Australia, the NAB Monthly Business Survey indicated that while business confidence rose to a reading of 6.0 in April, business conditions dipped slightly. Meanwhile, house price index rose in the first quarter, while home loans fell 0.9% (MoM) to a seasonally adjusted 52,013 numbers in March. Investment lending for homes declined 0.8%, following a 4.4% rise in February. During the week, the pair traded at a high of 0.9411 and a low of 0.9325. The first support is at 0.9320, and the next at 0.9279. The first resistance is at 0.9406, and the next at 0.9451.
Apart from key macro releases from the US this week, the Reserve Bank of Australia’s latest policy meeting minutes and Chinese manufacturing PMI data will be on investors’ radar.
Gold
In the prior week, Gold traded 0.36% higher against the USD and closed at USD1293.46, as concerns over ongoing unrest in Ukraine supported gold’s safe haven appeal. However, gains were capped as the latest batch of upbeat employment and inflation data from the US economy increased bets that the Federal Reserve will fasten its stimulus tapering program, dampening the demand for the yellow metal. The yellow metal traded at a high of 1309.28 and a low of 1282.30 in the previous week. Gold is expected to find support at 1280.75 and the next at 1268.03. The first resistance is at 1307.73, while the next is at 1321.99.
In the week ahead, gold traders will keenly await economic data from the US and the FOMC minutes. Moreover, speeches from influential Fed policymakers will be keenly watched.
Crude Oil
Oil prices traded 2.03% higher against the USD in the last week and closed at USD102.02, as upbeat US data raised expectations for energy demand and the violence in Libya supported prices. Oil prices rose on Friday, amid concerns over output in Libya, where recently opened fields were closed again and violence erupted. Furthermore, armed groups attacked Libya's interim parliament and an airbase on Sunday, adding to the turmoil in the country. The ongoing tensions in Ukraine also provided some support to prices. Moreover, the US Energy Department reported surprisingly high demand for gasoline last week, and the Paris-based, International Energy Agency forecasted that global demand for crude oil would rise. On the US oil inventory front, the American Petroleum Institute (API) reported that crude oil stock rose by 912,000 barrels for the week ended May 9, while the Energy Information Administration (EIA) indicated that crude oil inventories rose by 900,000 barrels. Oil traded at a high of 102.65 and a low of 99.99 in the previous week. Oil has its first major support at 100.46, while the next support exists at 98.89. The first resistance is at 103.12, and the next at 104.21.
In the week ahead, investors will focus on the minutes from the Federal Reserve's latest monetary policy meeting, due on Wednesday, for insight on the central bank's view on the US economy. Also, events unfolding in Ukraine and Libya will be tracked by oil traders.
Good trades.
