Weekly Forex Update
The greenback extended its losing streak, after the latest batch of weaker-than-expected US economic data added to signs of an uneven recovery in the world’s largest economy. The US economy contracted more than previously estimated in the first quarter of 2014, suggesting that the nation’s recovery has further to go before the Federal Reserve (Fed) raises interest rates. Data released by the US Labor Department showed a modest decrease in initial jobless claims for the week ended June 21. Additionally, the durable goods orders in the US unexpectedly declined in May.
However, hawkish comments by few eminent Fed policy makers provided some much needed relief to USD traders. The Richmond Fed President, Jeffrey Lacker, opined that the nation’s inflation would be firmer this year, while James Bullard, St. Louis’s Fed chief indicated that the central bank’s first interest-rate increase would happen in the first quarter of next year. He also opined that the nation’s unemployment rate is on track to fall below 6% and inflation is expected to rise back to 2% by the end of 2014. The greenback was also supported by better-than-expected consumer sentiment data released on Friday.
Meanwhile, the European Central Bank (ECB) Governing Council member, Ewald Nowotny highlighted central bank’s concerns over appreciation of the Euro and cautioned that further increase in the value of the EUR could keep the region’s inflation rate below the bank's 2.0% target.
In the midst of deflation worries surrounding the Euro-zone, the ECB’s policy meeting on Thursday is undoubtedly the highlight of this week, while the Eurozone’s preliminary inflation numbers will also be closely watched.
Last week, the Bank of England’s (BoE) Financial Policy Committee led by Governor Mark Carney introduced new measures to limit riskier home loans and consumer debt. The Pound touched the highest levels in more than five years against its US peer, after traders reacted positively to the BoE’s new measures to control burgeoning UK housing market. Moreover, the BoE Governor assured that new measures would not have any impact on monetary policy including the central bank’s interest rate schedule.
The Japanese Yen advanced against the USD, as better-than-expected domestic retail sales and unemployment data painted a positive picture for the economy.
EUR USD
Last week, the EUR traded 0.36% higher against the USD and closed at 1.3649, despite the release of dismal economic data from Europe. The economic sentiment index in the region weakened unexpectedly in June from a 34-month high in May. The German Ifo business confidence deteriorated for the second straight month in June, highlighting that geopolitical tensions in Eastern Europe and the Middle East continued to weigh on investors’ sentiment and overall business outlook. Also, the French business confidence weakened marginally in June, while the number of people unemployed in France rose to a new record high in May. Moreover, the dismal regional PMI data released earlier during the week suggested that recovery in the bloc continues to remain uneven and fragile. During the week, the pair traded at a high of 1.3652 and a low of 1.3573. The pair is expected to find its first support at 1.3597, with the next support expected at 1.3546. The first resistance is at 1.3676, and the next at 1.3704.
Amid recent spate of dovish comments by various ECB officials, investors will keep a tab on the outcome of ECB’s monetary policy meeting. Also inflation, retail sales and unemployment data from the Euro-zone will remain on investors’ radar.
GBP USD
In the last week, GBP traded 0.13% higher against the USD and closed at 1.7035, after the BoE announced measures to address UK housing market concerns, which were broadly in line with market expectations. The domestic currency was also buoyed by the BoE Governor, Mark Carney’s remarks who indicated that the central bank’s new measures to control mortgage lending were less likely to have implications on monetary policy, which currently anticipates limited and gradual rise in the interest rates. In economic news, the UK GfK consumer confidence index recorded first positive reading in since March 2005 in June, reinforcing signs of steady recovery in the nation. Additionally, current account deficit narrowed during the first quarter. However, the UK annual GDP data indicated that the nation’s economic growth was revised down for the first quarter of 2014. The pair traded at a high of 1.7052 and a low of 1.6952 in the previous week. GBPUSD is expected to find its first support at 1.6974, with the next at 1.6913. Resistance exists first at 1.7074, and then at 1.7113.
Housing and manufacturing data from the UK would be the main triggers that will provide further direction to Sterling ahead this week.
USD JPY
The USD traded 0.64% lower against the JPY over the past week, closing at 101.42, amid dismal economic data from the US. The Japanese Yen rose after data indicated that consumer prices in Japan rose at an annual rate of 3.4% in May, the fastest pace in 32 years. Unemployment rate in the world’s third largest economy unexpectedly fell to 3.5% in May, while Japan’s manufacturing PMI rose to a reading of 51.1 In May. Additionally, annual retail sales fell less than market anticipated in May. During the week, the Japanese Prime Minister, Shinzo Abe, outlined long awaited growth strategy that included a string of proposed reforms to the labor regulations, government pension fund investments, corporate governance and tax policies. The pair traded at a high of 102.18 and a low of 101.31. The pair is expected to find its first support at 101.10, with the next support expected at 100.77. The first resistance is at 101.96, and the next at 102.50.
Apart from external cues, the Yen traders would keep eye on industrial production, housing and construction data from Japan later this week.
USD CHF
The greenback fell 0.48% against the CHF and closed at 0.8908 in the last week, after the data indicated that the US economy shark more than market expectations for the first quarter of 2014. The Swiss Franc advanced, following the release of better-than-expected economic data from Switzerland. The Swiss trade surplus widened more-than-expected in May. The KOF leading indicator in Switzerland rose in June, surpassing market expectations, while the UBS consumption indicator strengthened in May. In its quarterly bulletin, the Swiss National Bank (SNB) projected the economy to register a moderate pace of recovery in the coming quarters with a growth rate of around 2.0% for 2014. During the week, the SNB chief, Thomas Jordan, indicated that the Swiss Franc still remains high at current levels and that the central bank’s decision to maintain the minimum exchange rate remains the right measure to ensure appropriate monetary conditions in Switzerland. During the period, the pair traded at a high of 0.8970 and a low of 0.8906. The first support is at 0.8886, and the next at 0.8864. Resistance exists first at 0.8950, and then at 0.8992.
Amid a lack of major economic releases from Switzerland ahead this week, traders would keep a tab on global economic news for further cues.
USD CAD
Last week, the USD traded 0.86% lower against the CAD and closed at 1.0666, as the latest batch of sluggish US economic data clearly weighed on the demand for the greenback and pushed the Canadian Dollar up against its US counterpart. On Friday, the Statistics Canada reported that the raw material price index in the nation eased 0.4% in May, compared to a rise of 0.1% in the preceding month. Markets were expecting the raw material price index to fall 0.1% in May. Separately, on a monthly basis industrial product price in Canada dropped 0.5% in May, compared to a 0.2% fall recorded in the previous month. USDCAD traded at a high of 1.0755 and a low of 1.0658 in the previous week. The first support is at 1.0631, with the next at 1.0596. The first resistance is at 1.0728, while the next is at 1.0790.
Apart from external cues, the Loonie traders would keep a tab on the Canadian GDP and trade data ahead this week.
AUD USD
AUD traded 0.42% higher against the USD last week, and closed at 0.9427, as disappointing US growth data for the first quarter and lackluster durable goods order pressurized the greenback. Furthermore, last week’s upbeat preliminary Chinese manufacturing PMI indicated a pickup in industrial activity in the second largest economy and kept the Aussie Dollar supported. During the week, the Reserve Bank of Australia’s (RBA) board member, John Edwards, expressed confidence that the Australian economy would withstand a slump in its mining sector. He opined that the economy would benefit from the low interest rates and infrastructure spending in other sectors. Furthermore, he stated that a weaker Aussie could help the nation in achieving 3.0% GDP growth, instead of an earlier target of 2.0% growth, over the next five to six years. During the week, the pair traded at a high of 0.9447 and a low of 0.9354. The first support is at 0.9372, and the next at 0.9316. The first resistance is at 0.9465, and the next at 0.9502.
In the week ahead, investors have their plate full with a raft of economic data scheduled for release in Australia including retail sales, building permit and trade data. Moreover, RBA’s monetary policy meeting will be closely scrutinized for further movements in the AUD.
Gold
The yellow metal rallied for the fourth consecutive week against the greenback, rising 0.10% to finish at 1316.18, as the latest batch of uninspiring economic data from the US weighed on the greenback and pushed investors to take refuge under the safe-haven metal. Weakness in the US equity markets and lingering geo-political tensions in Iraq, further bolstered the demand-outlook of the precious metal. However, soft demand for physical gold and profit-booking, kept the commodity’s gains in check. The yellow metal traded at a high of 1325.92 and a low of 1305.21 in the previous week. Gold is expected to find support at 1305.62 and the next at 1295.06. The first resistance is at 1326.33, while the next is at 1336.48.
Although the Fed’s outlook for the employment in the US has brought little satisfaction, traders would pay close attention to crucial unemployment rate and non-farm payrolls data in the US ahead this week.
Crude Oil
Oil prices traded 1.42% lower against the USD in the last week and closed at USD105.74, amid profit-taking and as supply concerns from the Middle East region eased. US military presence in Iraq brought increased confidence among oil traders over the security of the country's oil exports, while another report showed that Libya’s El Feel oil field increased its oil production. Additionally, oil prices also came under pressure as lackluster manufacturing PMI data from the Euro-zone and its member nations spurred fresh concerns on the demand-outlook of the commodity. Also the Energy Information Administration reported that US crude inventories rose by 1.74 million barrels to 388.0 million barrels for the week ended June 20, while the American Petroleum Institute reported that the US crude inventories rose by 4.0 million barrels to 382.6 million barrels for the similar week. Oil traded at a high of 107.50 and a low of 105.03 in the previous week. Oil has its first major support at 104.68, while the next support exists at 103.62. The first resistance is at 107.15, and the next at 108.56.
In the week ahead, oil traders will closely scrutinize the US nonfarm payrolls data for further indications on the strength of the labor market, while key manufacturing data from China and Europe will also be in focus.
Goos trades.
