Weekly Forex Update
The greenback recorded losses against most key currencies last week. Even though jobs data pointed to a continued recovery in the US labor market, market participants were slightly disappointed. The non-farm payroll employment rose by 217,000 jobs in May, missing analysts’ expectations for a rise of 218,000. Initial jobless claims rose to 312,000 from the previous week's revised level of 304,000. Analysts had expected claims to climb to 310,000. A separate report revealed that private sector payrolls in the US rose less-than-expected in May.
Moreover, the greenback also came under pressure, after Minneapolis Fed President, Narayana Kocherlakota, stated that the central bank would need to keep interest rates low for a longer time, citing the inability of the central bank to meet its goals of maximum employment and 2% inflation targets.
The European Central Bank (ECB) policy meeting dominated currency markets last week, as the central bank took bold initiatives to counter deflationary pressures and boost the region’s economy. The ECB cut its interest rates to 0.15% and became the first major central bank to charge fees on deposits.
The Euro came under pressure for a brief period after the rate announcement. However, comments from the ECB President, Mario Draghi, lifted the common currency against the USD. The ECB chief stated that interest rates in the region have reached their lowest levels and signaled that he was prepared to go further if necessary and may employ extraordinary easing measures including bond-buying program, if economic outlook in the region worsens further.
The GBP recorded gains against the USD last week. As anticipated, the Bank of England (BoE) left its benchmark interest rate unchanged at 0.5%, while maintained its asset purchase program steady at £375 billion in its monetary policy meeting.
The Swissy advanced against the USD, after consumer price inflation in Switzerland rose more-than-expected in May, recording the biggest rise since September 2011. Moreover, the Swiss Franc spiked against the EUR, after the ECB loosened its policy stance to lift inflation in the Euro-zone, taking pressure off the Swiss National Bank (SNB) to defend the EURCHF currency cap.
The Canadian Dollar backpedalled against its US counterpart, after the Bank of Canada (BoC) Governor, Stephen Poloz kept interest rates unchanged and stated that economic conditions have worsened in the past few months and continued monetary stimulus remains necessary.
Also, the Reserve Bank of Australia’s (RBA) monetary policy board governed by Glenn Stevens retained its key interest rate at a record low of 2.5%, in-line-with market expectations.
EUR USD
Last week, the EUR traded 0.06% higher against the USD and closed at 1.3643, after the ECB announced a series of monetary easing measures to counter low inflation in the region. The Euro initially dropped after the ECB cut its key interest rate to a record low and included a negative deposit rate. However, the shared currency gained after the central bank announced a series of measures to boost the region’s economy that exceeded market expectations. Among those, the ECB chief, Mario Draghi indicated that the bank had started work for the “outright” purchases of assets to boost lending in the region. In economic news, retail sales in the Euro-area advanced more-than-expected in April, while the second estimate from the Eurostat showed that the region’s economy grew as initially estimated in the first quarter. The German factory orders rebounded in April, rising at the fastest pace in nearly a year. On Friday, Germany's central bank raised its growth projection for 2014, stating that the Europe's economic powerhouse is on a “robust” growth path. However, dismal manufacturing and services PMI from the Euro-zone and Germany disappointed investors. During the week, the pair traded at a high of 1.3678 and a low of 1.3503. The pair is expected to find its first support at 1.3538, with the next support expected at 1.3433. The first resistance is at 1.3713, and the next at 1.3783.
Ahead this week, investors will keep a tab on the Euro-zone’s industrial production, employment change, trade and investor confidence data. Additionally, the German inflation for May will also be closely watched.
GBP USD
In the last week, GBP traded 0.28% higher against the USD and closed at 1.6802. On the economic front, manufacturing activity in the UK slowed in May, though it remained in the expansionary territory for the 15th consecutive month. The construction and services PMI continued to remain in the growth phase. The Nationwide indicated that on an annual basis, house prices in the UK rose at the fastest pace in nearly seven years in May. Another report by Halifax revealed that the average house prices in the country rose 3.9% (MoM) in May following two months of declines. However, mortgage approvals slipped to the lowest in nine months in April. Data released on Friday indicated that the visible trade deficit widened in April, reflecting a decline in exports and rise in imports. At its policy meeting, the BoE kept its interest rate at a historic-low and the size of quantitative easing at £375 billion. The pair traded at a high of 1.6847 and a low of 1.6699 in the previous week. GBPUSD is expected to find its first support at 1.6718, with the next at 1.6635. Resistance exists first at 1.6866, and then at 1.6931.
Ahead this week, investors will keep a tab on manufacturing, industrial and the NIESR GDP estimate in the UK.
USD JPY
The USD traded 0.70% higher against the JPY over the past week, closing at 102.48. The Yen came under pressure following the release of dismal Japanese economic data. The leading index in Japan declined to a reading of 106.6 in April, better than the market expectations for a fall to 106.1. The coincident index fell to 111.1 in April from a reading of 114.5 in March. Japanese service sector activity index rose to a reading of 49.3 in May from 46.4 in April. On an annual basis, Japanese vehicle sales fell 5.6% in May, following an 11.4% decrease recorded in the previous month. Moreover, the Bank of Japan reported that monetary base in Japan rose 45.6% (YoY) in May, compared to a 48.5% increase recorded in the previous month. The pair traded at a high of 102.81 and a low of 101.86. The pair is expected to find its first support at 101.95, with the next support expected at 101.43. The first resistance is at 102.91, and the next at 103.34.
Ahead this week, investors have their plate full with a raft of economic data including machinery orders, machine tool orders, consumer confidence and industrial production data. Moreover, the Bank of Japan policy meeting will also remain crucial.
USD CHF
USD traded 0.18% lower against the CHF and closed at 0.8936 in the last week. The CHF recorded gains following the release of higher-than-expected domestic inflation data. Consumer prices in Switzerland climbed 0.2% (YoY) in May after staying flat in April and against the expectations for a 0.1% rise. On a monthly basis, prices gained a more-than-expected 0.3% versus the 0.1% rise in April. Additionally, domestic industrial activity for the first quarter rose at a faster pace compared to the previous quarter. Meanwhile, a report from Credit Suisse showed that manufacturing PMI in Switzerland fell to a reading of 52.5 in May from 55.8 in April. Market had expected a reading of 55.5. During the period, the pair traded at a high of 0.9038 and a low of 0.8908. The first support is at 0.8883, and the next at 0.8831. Resistance exists first at 0.9013, and then at 0.9091.
Ahead this week, market participants would eye the Swiss retail sales data along with a slew of global macroeconomic reports.
USD CAD
Last week, the USD traded 0.78% higher against the CAD and closed at 1.0931. The Canadian Dollar declined against the greenback, as the BoC maintained its interest rate at 1.0% and after the BoC Governor, Stephen Poloz, offered a dovish view on the Canadian economy. The Governor indicated that economic growth in the nation was weaker-than-expected in the Q1 2014, while low inflation continued to remain a major concern. He further cautioned that recent spate of weak domestic data have added to downside risks to the economy. Moreover, data showed that the Canadian merchandise trade balance swung to an unexpected deficit in April. The seasonally adjusted Ivey manufacturing PMI dipped to a reading of 48.2 in May. Furthermore, unemployment rate in the nation rose to 7.0%, despite the economy adding 25,800 jobs in May, slightly higher than market expectations. USDCAD traded at a high of 1.0962 and a low of 1.0841 in the previous week. The first support is at 1.0861, with the next at 1.0790. The first resistance is at 1.0982, while the next is at 1.1032.
Traders will keep a close watch on the Canadian housing starts, capacity utilization and manufacturing shipments data this week.
AUD USD
AUD traded 0.24% higher against the USD last week, and closed at 0.9333. The Aussie began the week on a negative note, after a report revealed that the total number of building approvals issued in Australia tumbled for the third consecutive month in April. The AUD gained traction after data released showed that the Australian economy expanded at a faster-than-expected pace in Q1 2014. The AiG performance of service index rose to a reading of 49.9 in May, up from 48.6 in April. Also, retail sales in Australia added a seasonally adjusted 0.2% (MoM) in April. Meanwhile, the nation posted a seasonally adjusted merchandise trade deficit of A$122 million in April. At its policy meeting, the RBA maintained its benchmark interest rate at 2.5% and stated that the monetary policy might continue to remain accommodative in order to support demand and growth in the economy. During the week, the pair traded at a high of 0.9360 and a low of 0.9229. The first support is at 0.9255, and the next at 0.9176. The first resistance is at 0.9386, and the next at 0.9438.
Traders look forward to the NAB's business confidence, Westpac consumer confidence and employment data from Australia ahead this week.
Gold
In the prior week, Gold traded 0.28% higher and closed at USD1253.25, following the monetary policy announcement by the European Central Bank (ECB). The ECB slashed its deposit rates to a negative 0.10% and also implemented a new long-term refinancing operation, incentivizing banks to lend money. Additionally, the bank chief, Mario Draghi outlined number of other liquidity-boosting measures and stated that the bank would “intensify” its preparatory work on the asset-backed security market, which proved beneficial for the precious metal. In the US, employment reports pointed to continued economic recovery, and reaffirmed investor expectations that the Federal Reserve would curtail its stimulus program by the end of 2014, though the data came modestly below the market expectations. The yellow metal traded at a high of 1258.10 and a low of 1240.39 in the previous week. Gold is expected to find support at 1243.06 and the next at 1232.87. The first resistance is at 1260.77, while the next is at 1268.29.
Ahead this week, gold traders will be looking ahead to the US economic data for further indications on the strength of the economic recovery.
Crude Oil
Oil prices traded marginally lower against the USD in the last week and closed at USD102.66, on easing Ukraine tension and as US suspended its action on Iranian oil sanctions for the another six months. On Thursday, US indicated that Iran is fully co-operating with the US-led international community to address their concerns about its nuclear weapons program. Moreover, speculations rose that Ukrainian President, Petro Poroshenko’s peace-plan with Russia would ease oil supply concerns from the region. However, optimism that monetary stimulus in the Euro-zone will boost region’s economic growth and fuel demand helped limit the oil losses. Also, oil prices were supported by weekly oil inventory data from the US. The American Petroleum Institute reported that crude inventories in the US fell 1.4 million barrels for the week ended May 30, while the Energy Information Administration reported a 3.4 million barrels decline in the US crude supplies. Oil traded at a high of 103.69 and a low of 101.60 in the previous week. Oil has its first major support at 101.61, while the next support exists at 100.56. The first resistance is at 103.70, and the next at 104.74.
In the week ahead, investors will keep a tab on US economic data for further indications on the strength of the nation’s economy. Market participants will also monitor political situation in Ukraine, with tensions continuing even after the election of the new President.
Good trades.
