Weekly Forex Update
The greenback finished mostly lower against the major currencies last week, as disappointing US economic data pointed to underlying softness in the nation’s economic recovery. Retail sales growth unexpectedly slowed in May, while first-time applications for jobless benefits climbed for the week ending June 7. Moreover, a gauge of US consumer sentiment slipped to the lowest level in three months in June, missing market expectations. Moreover, the USD traders remained on sidelines amid mixed opinion from the Federal Reserve (Fed) officials on the interest rate stance. The Fed. St. Louis Fed President, James Bullard, opined that the strong economic growth in the US would enable the economy to witness an earlier-than-expected hike in its short-term interest rates. However, Eric Rosengren, the President of the Boston Fed, urged the central bank to refrain from raising its short-term interest rates until the economy was “within one year” of reaching the Fed’s employment and inflation goals.
Ahead this week, market participants will focus on the Fed monetary policy meeting and the US consumer price inflation data for further directions.
Dovish comments from few European Central Bank (ECB) officials played on traders mind as the Euro declined against the USD and other peers last week. An ECB governing council member, Erkki Liikanen indicated that the central bank is ready to act in order to support price stability and the economic recovery in the region while another policymaker, Jozef Makuch indicated that the bank is ready to slash its interest rates further if latest policy measures proved insufficient.
The Pound surged against the USD last week to move closer to the 1.70 mark following hawkish comments from the Bank of England Governor, Mark Carney, wherein he announced that the central bank might initiate a hike in its benchmark interest rate sooner-than-expected, amid a steady economic recovery in the UK.
The Bank of Japan retained its monetary policy unchanged last week and reiterated that the economy is recovering moderately. Meanwhile the BoJ Deputy Governor, Kikuo Iwata, echoed BoJ’s earlier view that the central bank’s qualitative and quantitative easing policy are delivering intended results and further projected a rise in the nation’s exports with a recovery in the overseas economies.
Meanwhile, the Bank of Canada in its semi-annual Financial System Review indicated that the Canadian financial system remains robust despite lingering concern about the nation’s housing market. The bank reported that the risk of financial stress from China and other emerging economies has increased in last six months, while the risk of renewed Euro-area crisis has diminished.
The Kiwi Dollar rose sharply against the greenback, after the Reserve Bank of New Zealand raised its benchmark interest rate to 3.25% in line with market expectations and for the third time in 2014. Further, the central bank indicated that interest rates need to be hiked as strong economic growth in the nation is expected to underpin inflationary pressures.
EUR USD
Last week, the EUR traded 0.75% lower against the USD and closed at 1.3540, as few of the top ECB policymakers signaled that the central bank had still more firepower to support the Euro-zone economy. The ECB Governing Council member, Bostjan Jazbec highlighted the central bank’s willingness to deploy additional stimulus measures to prevent inflation from weakening further in the economy. Another official, Ardo Hansson opined that the central bank should mull over QE options and keep such “options on the shelf for possible use.” Also, Yves Mersch hinted that the ECB could purchase “simple and transparent” asset-backed securities to enable the Euro-zone achieve its price stability target. On the economic front, the Sentix investor confidence index in the Euro-zone fell for a second consecutive month to reach a six-month low level of 8.5 in June. Industrial output in the region rebounded more than market expectations in April. During the week, the pair traded at a high of 1.3670 and a low of 1.3511. The pair is expected to find its first support at 1.3477, with the next support expected at 1.3415. The first resistance is at 1.3636, and the next at 1.3733.
In the midst of persistent worries about the Euro-zone’s deflationary situation, traders would keep a close eye on the bloc’s inflation data.
GBP USD
In the last week, GBP traded 0.99% higher against the USD and closed at 1.6968, after the BoE Governor, Mark Carney surprised market participants on upside, hinting that the central bank could raise its benchmark interest rates from historic five-year low of 0.5% sooner-than-expected. In economic news, the ILO unemployment rate in the UK fell more than market expectations to 6.6%, the lowest level in more than five years, while employment rose by 345,000. Separately, the number of jobless claims in the nation fell 27,400 in May. Earlier during the week, the Lloyds Bank reported that its index on UK’s employment confidence rose to a level of 4.0 in May, from previous month’s reading of 1.0. In a noteworthy event, Fitch Ratings affirmed UK’s long-term foreign and local currency issuer default ratings at “AA+” with a “Stable” outlook. The pair traded at a high of 1.6993 and a low of 1.6738 in the previous week. GBPUSD is expected to find its first support at 1.6806, with the next at 1.6645. Resistance exists first at 1.7061, and then at 1.7155.
Ahead this week, market participants would keep a tab on consumer price inflation and retail sales data in the UK.
USD JPY
The USD traded 0.43% lower against the JPY over the past week, closing at 102.04. The Bank of Japan held its key interest rate unchanged and maintained its monetary policy steady, in line with market expectations. Moreover, the BoJ indicated that the Japanese economy would continue to recover moderately despite some headwinds caused by the consumption tax hike in April, while reiterating that it is confident of achieving its 2% inflation target. In economic news, data revealed that industrial production in the Japan fell 2.8% (MoM) in April, while machinery orders fell 9.1% in April from the previous month. Separately, Japan’s consumer confidence index rose for the first time in six months to a reading of 39.3 in May. Meanwhile, economy watchers’ assessment of current conditions index in Japan advanced more-than-expected to a reading of 45.1, while the index on the economic outlook rose to 53.8 in May. The pair traded at a high of 102.66 and a low of 101.61. The pair is expected to find its first support at 101.54, with the next support expected at 101.05. The first resistance is at 102.60, and the next at 103.16.
The JPY is expected to take further cues from the outcome of minutes of the BoJ latest policy meeting. Traders would also keep an eye on the Japanese trade data ahead this week.
USD CHF
USD traded 0.73% higher against the CHF and closed at 0.9001 in the last week. The CHF came under pressure after data showed that unemployment rate in Switzerland remained unchanged at seasonally adjusted 3.2% in May, against forecast for rate to fall to 3.1%. Separately, another report revealed that retail sales in the Swiss economy rose at a slower-than-anticipated pace in April. During the period, the pair traded at a high of 0.9013 and a low of 0.8918. The first support is at 0.8942, and the next at 0.8882. Resistance exists first at 0.9037, and then at 0.9072.
Apart from Swiss economic data traders will keep a tab on Swiss National Bank (SNB) monetary policy decision ahead in this week.
USD CAD
Last week, the USD traded 0.70% lower against the CAD and closed at 1.0855. The Canadian Dollar rose after the Bank of Canada (BoC) in its semi-annual Financial System Review indicated that the Canadian financial system is robust despite lingering concern about the nation’s housing market. Moreover, the Loonie advanced against major currencies, as prices of oil, Canada’s largest export item climbed amid report of unrest in Iraq and fears that oil supplies may soon be disrupted. In economic news, the Canadian new housing price index advanced 0.2% as expected in April, while annual housing starts in the nation rose more-than-expected 0.8% to a seasonally adjusted seven-month high level of 198,324 in May. USDCAD traded at a high of 1.0943 and a low of 1.0839 in the previous week. The first support is at 1.0815, with the next at 1.0775. The first resistance is at 1.0919, while the next is at 1.0983.
Ahead this week, market participants are expected to keep an eye on the Canadian consumer price inflation and retail sales data for evaluating the nation’s macro profile.
AUD USD
AUD traded 0.74% higher against the USD last week, and closed at 0.9402, following better-than-expected economic data from China, Australia’s biggest trading partner. China's industrial production and retail sales growth accelerated in May, highlighting that recovery in the world’s second largest economy is stabilizing from the recent setbacks. Consumer prices in China rose 2.5% (YoY) in May, slightly above market expectations for 2.4% and up from 1.8% in April. Moreover, upbeat domestic consumer confidence data also lifted Aussie Dollar. The Westpac consumer confidence index in Australia rose to a reading of 93.2 in June from 92.9 in May. Meanwhile, the National Australia Bank's business confidence index remained unchanged in May. Unemployment rate in Australia remained unchanged at 5.8% for third straight month in May, defying market expectations for a rise to 5.9%. During the week, the pair traded at a high of 0.9439 and a low of 0.9334. The first support is at 0.9344, and the next at 0.9287. The first resistance is at 0.9449, and the next at 0.9497.
Moving ahead, the Reserve Bank of Australia’s minutes and Governor, Glenn Stevens speech will be the key market triggers. Also, leading index from Australia and economic data from the US and China will be watched closely by traders.
Gold
In the prior week, Gold traded 1.89% higher against the USD and closed at USD1276.89, recording a second weekly gain in a row, as a string of dismal US macro data and geopolitical concerns in Middle East boosted safe-haven demand of the gold. Moreover, equity markets across the world declined last week, as worries over escalating tension in Iraq and poor global economic outlook issued by the World Bank weighed. This boosted investors appeal for the precious metal as an alternative investment. In other gold related news, the Indian Trade Secretary highlighted the need for India, the world’s second largest consumer of gold, to “rationalize” its duty on gold imports. The yellow metal traded at a high of 1278.08 and a low of 1250.36 in the previous week. Gold is expected to find support at 1258.81 and the next at 1240.72. The first resistance is at 1286.53, while the next is at 1296.16.
Moving ahead this week, traders would keep a close tab on the Fed monetary policy decision to gauge the timing for an interest rate hike in the wake of recent mixed economic data released in the US.
Crude Oil
Oil prices surged to a nine month high, rallying 4.14% against the USD last week to USD106.91, as escalating violence in Iraq raised concerns on the oil supplies from the second-largest oil producer of the Organization of the Petroleum Exporting Countries (OPEC). Oil prices were pushed higher amid faltering talks between Ukraine and Russia over former’s gas payment to Russia. Oil prices also rose, as the US Energy Information Administration in its weekly report, indicated that crude stockpiles fell 2.6 million barrels for the week ended June 6, while a report from the American Petroleum Institute showed that US crude inventories rose by 1.45 million barrels for the similar period. Meanwhile, in its monthly oil report, OPEC projected that the global oil demand would rise by 1.14 million barrels a day in 2014. Oil traded at a high of 107.68 and a low of 102.72 in the previous week. Oil has its first major support at 103.86, while the next support exists at 100.81. The first resistance is at 108.82, and the next at 110.73.
Ahead this week, oil traders are likely to remain on edge amid escalating tensions in Iraq with rising speculation that the nation is moving closer to a civil war.
Good trades.
