Forex Market Update
During the past week, the greenback traded mostly higher against its key peers, as Fed Chief, Janet Yellen, predicted that the US economy would post strong growth figures in the current quarter despite her foreseeing continued low borrowing costs due to housing market risks and considerable slack in the labor market.
Separately, the Fed Board of Governor, Jeremy Stein, opined that the central bank was well placed to permanently exit its QE policy without creating significant volatility in the financial markets.
In economic news, the weekly initial jobless claims and the official services PMI in the US came in better-than-expected. Investors would now look forward to the release of the US retail sales and inflation data to assess the economic views of the central bank.
In a noteworthy development, the OECD reduced its growth outlook for the global economy for the current year, citing a slowdown in the developing economies. It further urged the developed nations to quicken their economic recovery to offset the sluggish growth in the emerging markets.
The EUR inched lower against the USD, as the ECB Chief, Mario Draghi, reiterated that a strong Euro remained the major reason behind the easing inflationary pressures in the Euro region, adding that early as the next month may witness some stimulus measures. Meanwhile, the European Commission trimmed its growth and inflation forecast for the next year.
A couple of higher revisions of the UK’s growth outlook from the OECD and NIESR failed to maintain the winning streak of the GBP against the USD. Separately, the Bank of England (BoE) voted to leave its policy tools on hold at its recently concluded meeting, as widely expected.
The Bank of Japan (BoJ), in the minutes of its latest policy meeting, reaffirmed that the nation’s economy was expected to recover at moderate pace and country’s spending pattern was successful in withstanding the recent sales tax hike introduced in April. Meanwhile, the OECD lowered its economic growth projection for Japan and urged a proper enactment of fiscal reforms.
The Loonie found support against the USD, amid optimism that the recent batch of positive macroeconomic data in Canada’s southern neighbor would result in robust trading activities between the two countries. However, a separate report revealed that employment fell in Canada during April.
The AUD found support, as robust Australian jobs and trade data of its major trading partner China, fuelled positive sentiments of the growth prospects of the island country. Meanwhile, the Reserve Bank of Australia (RBA) left its interest rates unchanged and indicated that a dovish monetary stance is an apt measure to foster economic activities in the nation.
EUR USD
Last week, the EUR traded 0.80% lower against the USD and closed at 1.3758, as the ECB President, Mario Draghi, cautioned about the strength of the Euro and added that the central bank was set to introduce additional easing measures when it meets next time in June. Even though the European Commission maintained its growth forecast for the Euro-zone’s economy for 2014, it lowered its growth outlook for the next year. Moreover, it also trimmed its inflation projections in the Euro-zone for the current and the next year. In a noteworthy development, S&P’s lifted its rating outlook for Portugal ‘Stable’ from ‘Negative’. Meanwhile, services activity in the euro bloc improved in line with its preliminary estimate in April, whereas, retail sales surprisingly advanced in March. Separately, factory orders and industrial production in Germany dropped unexpectedly in March. During the week, the pair traded at a high of 1.3994 and a low of 1.3745. The pair is expected to find its first support at 1.3671, with the next support expected at 1.3583. The first resistance is at 1.3920, and the next at 1.4081.
The Euro-zone’s consumer price inflation data would remain the key trigger during this week’s market action, followed by the central bank’s monthly report and the growth data of the common currency bloc. Meanwhile, investors would also keep a close eye on a spate of German macroeconomic data.
GBP USD
In the last week, GBP traded 0.11% lower against the USD and closed at 1.6851. During the week, the BoE left its interest rate at record-low levels at 0.5% and also kept the size of its bond purchases unaltered at £375 billion. Separately, the NIESR predicted that the UK’s economy grew at 1.0% during the three months ended in April. In a key development, the OECD lifted its growth forecast for the UK to 3.2% for 2014 from its previous estimate of 2.4% provided in last November. Other key data released during the week revealed that services PMI in the UK climbed higher than analysts’ expectations in April, whereas industrial production dropped in March. The pair traded at a high of 1.6998 and a low of 1.6832 in the previous week. GBPUSD is expected to find its first support at 1.6789, with the next at 1.6728. Resistance exists first at 1.6955, and then at 1.7060.
The release of the BoE’s quarterly inflation report is expected to remain on the radar of market participation, as it might help investors gauge the near-term growth prospects of the UK. Investors also expected to keep a close watch on the UK’s jobs data.
USD JPY
The USD traded 0.33% lower against the JPY over the past week, closing at 101.86. During the week, the BoJ released the minutes of the latest policy meeting held on April 7-8, which indicated that the nation would continue to improve at a moderate pace in the foreseeable future. It also stated that a hike in the sales tax introduced in the past month had no detrimental effect on spending pattern in the nation which remained healthy. Separately, the OECD slashed its growth forecast for Japan to 1.2% for 2014 and urged that the nation was in dire need to strictly adopt fiscal reforms with a view to avoid any hindrance to the economic growth. In economic news, Markit economics stated that services PMI in Japan contracted in April. Meanwhile, leading economic index in the nation dropped more than expectations in March. The pair traded at a high of 102.24 and a low of 101.43. The pair is expected to find its first support at 101.44, with the next support expected at 101.03. The first resistance is at 102.26, and the next at 102.66.
Investors in JPY are expected to track the release of the nation’s GDP data to determine the trend of the pair in this week. Moreover, speech of the BoJ’s Governor would also gather much of market attention.
USD CHF
USD traded 0.96% higher against the CHF and closed at 0.8864 in the last week, as encouraging US macroeconomic data and comments from the US Fed Chairwoman, Janet Yellen, that the nation’s economy was on its track to post a solid growth, supported the greenback. The State Secretariat for Economic Affairs reported that consumer climate indicator in Switzerland fell unexpectedly to a level of 1.0 between January and April 2014. Meanwhile, the annual consumer price inflation and jobless rate in Switzerland remained steady April. During the period, the pair traded at a high of 0.8874 and a low of 0.8703. The first support is at 0.8753, and the next at 0.8643. Resistance exists first at 0.8924, and then at 0.8985.
Apart from the global macroeconomic trends, Swiss Franc investors would rely on the release of the nation’s retail sales and ZEW survey data in placing their bets in the pair.
USD CAD
Last week, the USD traded 0.67% lower against the CAD and closed at 1.0898, as the US Fed Chief, Janet Yellen, reiterated that interest rates in the nation were expected to remain at current level for a prolonged period of time. The Loonie found support, amid optimism that recent economic developments in its major trading partner, US, would improve the trading prospects between the two nations. However, an unexpected drop in the Canadian employment data limited the gains in the Loonie. In economic news, housing starts in Canada rose more than market expectations, whereas, merchandise trade balance narrowed in March. Separately, manufacturing activity deteriorated in the past month. USDCAD traded at a high of 1.0991 and a low of 1.0812 in the previous week. The first support is at 1.0810, with the next at 1.0721. The first resistance is at 1.0989, while the next is at 1.1079.
The Loonie trades are expected to keep a close tab on the BoC’s review which might provide a gist of the recent happenings in the nation. Moreover, the Canadian housing data is expected to determine the near-term trend in the pair.
AUD USD
AUD traded 0.92% higher against the USD last week, and closed at 0.9362, after the RBA left its lending rates at current levels and as encouraging trade data of its prime trading partner, China, improved the trading relations between the two countries. Moreover, upbeat jobs data of the island nation also cemented the positive views of the central bank towards the nation’s labor market. Also, upward revision of the nation’s economic growth from the central bank for quarter ending June 2014 fuelled positive sentiment for the AUD. However, the central bank’s dovish stance on the future interest rates kept in check the gains in the Aussie. Moreover, the central bank added that inflation in the nation was expected to remain in the range of its target rate. During the week, the pair traded at a high of 0.9396 and a low of 0.9251. The first support is at 0.9277, and the next at 0.9191. The first resistance is at 0.9422, and the next at 0.9481.
Aussie traders would look forward to the nation’s budget release. Moreover, macroeconomic triggers in China would also act as a catalyst in determining the direction of the pair in this week.
Gold
In the prior week, Gold traded 0.83% lower against the USD and closed at USD1288.79, as the encouraging remarks regarding the US future economic prospects given by the US Fed Chair, boosted risk appetite among investors and thereby reduced demand for the yellow metal. Gold also lost its shine after the Russian President, Vladimir Putin, removed its troops from the Ukrainian border and sought an amiable way to settle the geopolitical tensions between the two nations. Moreover, encouraging US domestic data also dented demand for safe haven appeal. Furthermore, a report published by China Gold Association, revealed that the nation’s consumption of the yellow metal plunged more than 40% in the first quarter of 2014, signaling the diminishing demand for the safe haven asset. The yellow metal traded at a high of 1315.70 and a low of 1285.09 in the previous week. Gold is expected to find support at 1277.35 and the next at 1265.92. The first resistance is at 1307.96, while the next is at 1327.14.
Investors in the yellow metal are expected to keep a close watch on the US consumer price inflation and retail sales data, as a positive reading would confirm the views of the central bank that the US economy recovery was gathering steam. Moreover, developments in Ukraine would also actively drive the prices of the safe haven asset.
Crude Oil
After swinging between gains and losses, crude oil finally settled 0.23% higher against the USD in the past week at USD99.99, after two of the leading energy watchdogs in the US reported an unexpected drop in the nation’s crude oil inventories. The American Petroleum Institute reported an unexpected 1.8 million drop in the US crude oil inventories, whereas, the Energy Information Administration reported a similar decline in the crude oil stockpiles during the week ended May 2. Crude oil also found support, on reports that unrest in oil rich African nation, Libya, was renewed after rebels showed their reluctance to deal with the nation’s new Prime Minister, leaving two ports shut. Moreover, encouraging Chinese trade data lifted demand for the commodity. Oil traded at a high of 101.18 and a low of 98.91 in the previous week. Oil has its first major support at 98.87, while the next support exists at 97.76. The first resistance is at 101.14, and the next at 102.30.
Crude oil traders would take hints from the release of a barrage of macroeconomic data from the US while placing their trades in the commodity. Also, they would keep a close eye on the developments between Ukraine and Russia.
Good trades.
