Weekly Forex Update
The USD rebounded against most of the major currencies last week, except for the Pound and the Loonie.
The greenback was supported by strong US jobs data which gave evidence that the US economy was growing and heading strongly to the second half of the year. The ADP report revealed that US private sector employers added more-than-expected jobs in June. Also, encouraging non-farm payrolls report indicated that US employers added more jobs than expected for the fifth consecutive month while the unemployment rate dropped unexpectedly in June. Moreover, trade deficit in the US narrowed more-than-expected to $44.4 billion in May.
However, dismal factory orders, Chicago business activity index, ISM manufacturing and services PMI data capped gains in the US Dollar. Also, dovish comments from the Federal Reserve (Fed) Chairman disappointed USD traders. Janet Yellen indicated that low interest rates in the US are not major threats to its financial system and opined that there is no need to raise them. Ahead this week, the Federal Open Markets Committee’s (FOMC) minutes for June policy meeting would be the major event for traders.
Yesterday, the International Monetary Fund (IMF) chief, Christine Lagarde cautioned that the global economy will grow at a slower pace than initially expected in 2014.
The Euro backpedalled, after the European Central Bank (ECB) left its key interest rates unchanged at its policy meeting and indicated that the policymakers remain committed to use unconventional measures in future to boost recovery in the region. Also dismal economic data from the Euro-zone and its member nations proved dampener for the common currency.
The Pound advanced against its US counterpart, with the pair recording a new high of 1.7181 as flow of positive economic data from the UK raised hopes that the similar momentum would continue in the second half of the year and would compel the Bank of England (BoE) to raise interest rates sooner-than-expected.
The Loonie advanced against the USD, after domestic manufacturing and trade data bolstered investors’ demand for the local dollar.
Meanwhile, at its policy meeting the Reserve Bank of Australia (RBA) Governor, Glenn Stevens indicated that the Australian Dollar is overvalued and remains high by historical standards. His comments clearly weighed on the performance the AUD against most of the majors. Additionally, weak domestic retail sales data kept a tight lid on the Aussie.
EUR USD
Last week, the EUR traded 0.40% lower against the USD and closed at 1.3595, following comments from the ECB chief, Mario Draghi, who indicated that interest rates in the region would continue to stand at current or lower levels for an extended period of time. He reconfirmed that the central bank would not hesitate to use any form of unconventional instruments, if required, to avoid the risk of deflation in the region. The Euro also came under pressure as the latest batch of dismal economic data from the Euro-zone and its member nations spurred fresh concerns on the recovery-prospects in the region. Retail sales in the Euro-zone stagnated while the German retail sales fell unexpectedly in May. The German factory orders declined more-than-expected in May as domestic and foreign orders declined. Also, manufacturing activity in the Euro-zone, Germany, France and Italy deteriorated while services PMI in the Euro-zone, Germany, France and Spain reported slowdown in activity. During the week, the pair traded at a high of 1.3701 and a low of 1.3585. The pair is expected to find its first support at 1.3553, with the next support expected at 1.3511. The first resistance is at 1.3669, and the next at 1.3743.
The ECB’s monthly report would remain the key trigger during this week’s market action as it would provide detailed analysis of prevailing economic situation in the region. Market participants would also keep a close eye on a spate of German macroeconomic data including industrial production, trade and inflation numbers.
GBP USD
The GBP surged 0.73% against the USD and closed at 1.7160 last week, as domestic economic data continued to show signs of a steady recovery in the UK, raising expectations that the central bank might raise interest rates sooner-than-expected. Manufacturing activity in the UK expanded further in June while construction PMI rose to a four-month high, backed by faster expansions in housing and commercial building activity. The dominant service sector activity in UK continued to strengthen in June, albeit at a slower rate than expected. The Nationwide house prices expanded at the fastest pace since 2005 in June. Meanwhile, a survey by the Confederation of British Industry showed that financial services firms in Britain expects business volumes to grow at a robust pace in the third quarter. The pair traded at a high of 1.7181 and a low of 1.7009 in the previous week. GBPUSD is expected to find its first support at 1.7052, with the next at 1.6945. Resistance exists first at 1.7224, and then at 1.7289.
Ahead this week, investors will keep a tab on the domestic manufacturing and industrial production and NIESR GDP estimate to gauge the strength of economic recovery in Britain. Additionally, the BoE monetary policy meeting scheduled on Thursday will be closely watched for hints on the timing of a probable interest rate hike.
USD JPY
The USD traded 0.63% higher against the JPY over the past week, closing at 102.06, after data indicated that the US economy added more private sector jobs in June, while the unemployment rate in the nation unexpectedly fell. Meanwhile, uninspiring domestic data dampened investors’ sentiment towards the local Yen. The Japanese service sector activity contracted for the third consecutive month and at faster-than-expected pace in June. Housing starts in Japan fell more-than-expected in May, declining for the third consecutive month. The Tankan survey revealed that sentiment among large Japanese manufacturers deteriorated sharply in the second quarter. The pair traded at a high of 102.30 and a low of 101.24. The pair is expected to find its first support at 101.43, with the next support expected at 100.80. The first resistance is at 102.49, and the next at 102.92.
Yen traders are expected to remain busy this week, amid a barrage of domestic macroeconomic data including machinery orders, trade balance, consumer confidence, leading economic and coincident indicators. Separately all eyes would also be on the Bank of Japan’s interest rate decision.
USD CHF
USD traded 0.37% higher against the CHF and closed at 0.8941 in the last week, as improvement in the US job market strengthened expectations that the Federal Reserve could hike interest rates sooner-than-expected. In the Swiss economic news, the SVME and Credit Suisse reported that manufacturing PMI in the nation rose to a 2-month high reading of 54.0 in June, from a level of 52.5 in the previous month. During the period, the pair traded at a high of 0.8953 and a low of 0.8856. The first support is at 0.8880, and the next at 0.8820. Resistance exists first at 0.8977, and then at 0.9014.
Ahead in the week, investors are expected to closely track the Swiss consumer price inflation data. Additionally, retail sales data from Switzerland would also act as a key catalyst in determining the direction of the Swiss Franc.
USD CAD
Last week, the USD traded 0.12% lower against the CAD and closed at 1.0653. The Loonie advanced, after data revealed that trade deficit in Canada narrowed in May. The Statistics Canada reported that the Canadian trade deficit narrowed to C$ 0.15 billion in May, compared to market expectations of a deficit of C$ 0.30 billion and following a deficit of C$ 0.96 billion in the previous month. Also the RBC manufacturing PMI in the nation rose to a six-month high reading of 53.5 in June, from a level of 52.2 in May. However, data released earlier in the week showed that the Canadian economy expanded 0.1% (MoM) in April, failing to meet market expectations for an expansion of 0.2%. USDCAD traded at a high of 1.0698 and a low of 1.0618 in the previous week. The first support is at 1.0615, with the next at 1.0576. The first resistance is at 1.0695, while the next is at 1.0736.
Ahead this week, investors have their plate full with a raft of economic data including building permits, housing starts and Ivey manufacturing index, scheduled for release from Canada. Moreover, employment data for June and the Bank of Canada’s business outlook survey for second quarter will also remain crucial.
AUD USD
AUD traded 0.66% lower against the USD last week, and closed at 0.9365, following the release of mixed set of economic data from Australia and after bearish comments by the RBA Governor, Glenn Stevens prompted traders to move away from the Aussie. He indicated that record low interest rates have not fully flowed through the economy as the Aussie still remained at an “uncomfortably high” level. Negative sentiment was also fuelled after retail sales in Australia unexpectedly declined in May, recording its weakest reading since July 2012. A separate report revealed that the Australian service PMI fell to a level of 47.6 in June. Also, Australia posted a merchandise trade deficit of A$1.911 billion in May. At its policy meeting the RBA left its key interest rate unchanged at 2.5%, in line with market expectations. During the week, the pair traded at a high of 0.9507 and a low of 0.9329. The first support is at 0.9294, and the next at 0.9222. The first resistance is at 0.9472, and the next at 0.9578.
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 0.33% higher and closed at USD1320.55. The yellow metal began the week on a positive note as the greenback declined following the release of dismal Chicago manufacturing PMI for June. However, data released on Wednesday brought much needed recovery for the US currency, after the Department of Labor indicated that non-farm payrolls in the US rose in June while the unemployment rate ticked down to a five-and-a-half year low of 6.1% from 6.3% in May. Meanwhile, concerns over weak physical demand from the top consumer, China, continued as a leading broking house projected that gold imports in the nation would go down in 2014. During the week, the Fed Chairman, Janet Yellen stated that low interest rates in the US are not major threats to its financial system and opined that there is no need to raise them. The yellow metal traded at a high of 1334.06 and a low of 1309.32 in the previous week. Gold is expected to find support at 1308.56 and the next at 1296.57. The first resistance is at 1333.30, while the next is at 1346.05.
Traders look forward to the outcome of the FOMC minutes and economic data from the US. Also, monetary policy meeting from the Bank of England and the Bank of Japan will generate market interest.
Crude Oil
Oil prices shed 1.86% last week and closed at USD103.77, as concerns over potential supply disruptions from the Middle East ebbed. However, losses in crude oil prices were kept in check after reports from China revealed that manufacturing activities in the nation expanded in June. Also, positive data from the US raised oil demand prospects from the country. Moreover, the Energy Information Administration reported a more-than-expected drop of 3.2 million barrels in the US crude supplies for the week ended June 27. In addition, the American Petroleum Institute reported 876,000 barrels fall in the US crude inventories. Oil traded at a high of 106.09 and a low of 103.64 in the previous week. Oil has its first major support at 102.91, while the next support exists at 102.05. The first resistance is at 105.36, and the next at 106.95.
In the week ahead, investors will focus on the minutes from the Fed’s latest monetary policy meeting, due on Wednesday, for further insight on the central bank's view on the US economy.
Happy trades.
