Weekly Forex Update
The greenback started the week on a positive note on the back of encouraging macroeconomic reports that suggested that the US economy is on the path of recovery. Moreover, comments from a few Federal Reserve (Fed) policy makers signaled that the central bank may raise interest rates sooner-than-expected. The greenback also found support from the rising tensions in Eastern Europe, after the newly elected Ukrainian President pledged to take steps to rein in separatists in the eastern part of the country.
However, the USD came under pressure in the second half of the week, after the US consumer sentiment and personal spending data disappointed traders. Additionally, the US Commerce Department revealed that the nation’s economy contracted more-than-expected in the Q1 2014.
The US data revealed that new orders for manufactured durable goods unexpectedly rose in April. House prices advanced more-than-expected in March and consumer confidence in the nation improved as expected in May. Business activity in the US service sector jumped to its highest level in more than two years in May, while the Chicago-area business activity rose to a seven-month high. The US Labor Department revealed that first-time claims for unemployment benefits fell more-than-expected for the week ended May 24.
The Kansas Fed chief, Esther George opined that the Fed should begin raising interest rates soon after it ends its current round of bond-buying, and that rise in rates should be steeper than expectations. Meanwhile, the Richmond Fed President, Jeffrey Lacker stated that the Fed could raise US interest rates around the second quarter of next year.
Despite lack of domestic triggers, the Euro advanced against the greenback last week. The European Central Bank (ECB) President, Mario Draghi, reassured investors that the bank remains alert to the risks to a prolonged period of low inflation and expressed readiness to take action if required.
In a positive development over the weekend, the Spanish Prime Minister, Mariano Rajoy announced that the government will roll out a spending package worth more than $8 billion in the coming week to support growth and create more jobs.
The Pound fell 0.46% against the USD and 0.49% against the EUR last week, amid lack of domestic triggers from the UK. Market participants keenly await UK manufacturing PMI and housing data this week. Additionally, the Bank of England’s (BoE) monetary policy meeting will be closely watched for hints on the future policy stance.
Precious metals, gold and silver plummeted more than 3% last week and recorded a monthly loss, amid signs that the US economy is improving and as demand for the metals slowed in China, the biggest consumer. Moreover, the Fed officials continue to voice their support for the US central bank to raise interest rates, earlier-than-expected.
EUR USD
Last week, the EUR traded marginally higher against the USD and closed at 1.3635, despite the release of mostly disappointing economic data from the Euro-region. Data indicated that the number of unemployed people in Germany unexpectedly increased, while the unemployment rate remained unchanged in May. Annual inflation weakened in Spain and Italy, adding pressure on the ECB to unveil unconventional measures. The CB leading index in the Euro-zone declined in April, following an increase in the previous two months. Moreover, money supply growth in the region slowed in April and loans to the private sector continued their downward trend. During the week, the ECB President, Mario Draghi assured investors that the central bank will do everything feasible within their mandate to counter deflationary pressures and boost recovery in the Euro-zone. During the week, the pair traded at a high of 1.3670 and a low of 1.3585. The pair is expected to find its first support at 1.3590, with the next support expected at 1.3545. The first resistance is at 1.3675, and the next at 1.3715.
Amid sluggish growth and low inflation in the region, market participants will be looking forward to the outcome of the ECB’s policy meeting this week. Additionally, the final manufacturing and services PMI numbers from the European economies along with the final Euro-zone GDP data will attract market attention.
GBP USD
In the last week, GBP traded 0.46% lower against the USD and closed at 1.6755. In economic news, mortgage approvals in the UK declined for the fourth consecutive month in April. Meanwhile, the distributive trade survey disappointed traders as growth slowed more-than-expected in May. The pair traded at a high of 1.6883 and a low of 1.6693 in the previous week. GBPUSD is expected to find its first support at 1.6671, with the next at 1.6587. Resistance exists first at 1.6861, and then at 1.6967.
Ahead this week, investors will keep a tab on the domestic PMI and housing sector data for further insights into the health of the nation’s housing market. Additionally, the BoE monetary policy meeting scheduled on Thursday will be closely watched for hints on the future policy stance.
USD JPY
The USD traded 0.20% lower against the JPY over the past week, closing at 101.77. The greenback began the week on a positive note, following the release of better-than-expected economic data in the US. However, dismal personal spending and consumer sentiment data on Friday and a weak US GDP numbers released on Thursday, prompted traders to move away from the US dollar. Meanwhile, demand for the Yen continued to be underpinned by diminished expectations for more stimulus by the Bank of Japan (BoJ), after the bank indicated earlier this month that its stimulus program has been working as intended. In economic news, industrial output in Japan dipped in April, while, the Nationwide core inflation in Japan rose 3.2%. Retail sales in Japan slipped 4.4% on year in April at ¥11.01 trillion. The pair traded at a high of 102.16 and a low of 101.42. The pair is expected to find its first support at 101.40, with the next support expected at 101.04. The first resistance is at 102.15, and the next at 102.53.
Apart from external cues, traders would keep an eye this week on Japanese economic data which includes Markit services PMI, leading economic and coincident index.
USD CHF
USD traded 0.07% lower against the CHF and closed at 0.8952 in the last week. The Swiss Franc advanced after data indicated that Switzerland’s GDP grew at an annualized rate of 2.0%, aided by a positive trade balance and strong investments in construction industry. On quarterly basis, the economy grew 0.5% in the first three months of the year. Separately, trade surplus rose to CHF2.43 billion in April, from CHF1.99 billion in March. Exports grew 0.6% (MoM), from a decline of 1.1% in March. The KOF leading indicator fell for the third consecutive month to a reading of 99.8 in May. During the period, the pair traded at a high of 0.8991 and a low of 0.8933. The first support is at 0.8926, and the next at 0.8901. Resistance exists first at 0.8984, and then at 0.9017.
During the later course of this week, market participants would eye the Swiss consumer price inflation data which could prove a key determinant for the Swiss Franc. Additionally, the Swiss first quarter industrial production data and the SVME manufacturing PMI numbers for May will also be watched.
USD CAD
Despite uninspiring Canadian growth data, the Loonie finished higher last week, rising 0.14% against the USD to close at 1.0846. The greenback traded higher in the first half of the week, as better-than-expected durable goods order and services PMI data from the US supported demand for the USD. However, dismal consumer sentiment for May and first quarter GDP data capped dollar’s gain. The US dollar gained ground against its Canadian peer on Friday, after Statistics Canada reported that the Canadian economy slowed more sharply than expected in the Q1 2014, as a harsh winter in North America slowed housing construction, business spending and exports. USDCAD traded at a high of 1.0888 and a low of 1.0820 in the previous week. The first support is at 1.0815, with the next at 1.0783. The first resistance is at 1.0883, while the next is at 1.0919.
Ahead this week, investors have their plate full with a raft of economic data including trade, housing, employment and Ivey manufacturing index, scheduled for release from Canada. Moreover, the Bank of Canada’s policy meeting will also remain crucial.
AUD USD
AUD traded 0.86% higher against the USD last week, and closed at 0.9310. In economic news, the Westpac leading index in Australia dropped 0.5% (MoM) in April, compared to a flat change recorded in the previous month. Also, private capital expenditure declined a more-than-expected 4.2% (QoQ) in Q1 2014, compared to a revised 4.5% drop recorded in the previous quarter. New home sales in Australia climbed 2.9% in April, compared to a 0.2% rise in the previous month. The Australian Bureau of Statistics reported that on a seasonally adjusted quarterly basis, construction work done in Australia climbed 0.3% in Q1 2014, against expectations for a decline of 0.5%. During the week, the pair traded at a high of 0.9331 and a low of 0.9211. The first support is at 0.9237, and the next at 0.9164. The first resistance is at 0.9357, and the next at 0.9404.
Traders will keep a close watch on the Australian trade, building permit and the Q1 GDP data this week. Also, the Reserve Bank of Australia’s interest rate decision will be on investors’ radar.
Gold
In the prior week, Gold plunged 3.31% against the USD and closed at USD1249.73, as upbeat durable goods order and weekly jobless claims data from the US kept greenback supported. Also, comments from few prominent Fed policy makers bolstered market demand for the USD. However, the yellow metal pared its losses after data showed that the world’s largest economy contracted in the first quarter of 2014 and consumer sentiment index fell more-than-expected. The yellow metal traded at a high of 1294.41 and a low of 1242.33 in the previous week. Gold is expected to find support at 1229.90 and the next at 1210.08. The first resistance is at 1281.98, while the next is at 1314.24.
Traders look forward to the outcome of monetary policy meeting from the ECB and central banks from the UK, Australia and Canada. Also, economic data from the US, particularly non-farm payrolls will generate market interest.
Crude Oil
Oil prices traded 1.57% lower against the USD in the last week and closed at USD102.71, as crude oil inventories in the US rose. The American Petroleum Institute reported a 3.5 million barrels rise in the US commercial crude oil inventories. Analysts had projected a gain of 500,000 barrels in the US crude supplies. Additionally, the Energy Information Administration indicated that the US crude stockpiles rose by 1.7 million barrels last week, higher than analysts’ expectations for a rise of 1.0 million barrels. However, escalating violence in Ukraine and lingering concerns on Libya’s supply outlook, kept the commodity’s losses in check. Oil traded at a high of 104.50 and a low of 102.40 in the previous week. Oil has its first major support at 101.91, while the next support exists at 101.10. The first resistance is at 104.01, and the next at 105.30.
In the week ahead, investors will keep a tab on US nonfarm payrolls data for further indications on the strength of the labor market. Manufacturing data from the European economies and China will also prove key short-term determinant for crude oil prices.
Good trades.
