Weekly Forex Update
The greenback finished mostly lower against key currencies, after minutes of the latest Federal Open Market Committee (FOMC) meeting offered no clarity over the probable timing of an interest rate hike in the US. However, the minutes also revealed that the Federal Reserve (Fed) officials had decided to end the central bank’s bond-buying programme by October 2014.
Meanwhile, the Minneapolis Fed President, Narayana Kocherlakota, reaffirmed his dovish view by stating that the US job market is still too weak and inflation too low. He opined that the central bank should not rush to increase the short term interest rates, as the economy is still far from strong recovery. However, Kansas City Federal Reserve President, Esther George, sounded optimistic as she opined that the recent positive developments in the US labor market and the inflation rates rising closer to its target signaled for an interest rate hike as early as this year.
On Friday, the US Dollar was in demand supported by better-than-expected initial jobless claims data. The Labor Department reported an unexpected drop in first-time claims for US unemployment benefits for the week ended July 5. The US consumer credit rose nearly in line with market estimates, while wholesale inventories rose by slightly less-than-anticipated in May.
The Euro came under pressure earlier, as risk aversion increased amid concerns over the fiscal stability of Portugal’s largest lender, Banco Espirito Santo. However, the common currency recouped its losses, after Portugal’s central bank calmed investors’ nerves, stating that the Banco Espirito Santo does not need extra funds and that it has sufficient finances to deal with its parent company's debt problems.
The Pound traded lower after industrial and manufacturing production in the UK unexpectedly declined, while trade deficit widened surprisingly in May. Moreover, the British Chambers of Commerce (BCC) cautioned that the Bank of England (BoE) should not make any swift decisions to raise interest rates, citing that such measures could limit nation’s growth. Meanwhile, the Bank of England (BoE) left its benchmark interest rate unchanged at 0.5% and maintained its asset purchase facility steady at £375 billion, in line with market expectations.
On Friday, the Statistics Canada reported that unemployment rate in the nation climbed to 7.1% in June, while the economy lost 9,400 jobs in June, missing market expectations for a 20,000 rise, after an increase of 25,800 in the previous month. Disappointing Canadian jobs data proved dampener for the local currency, suppressing the prospect for the Bank of Canada to raise interest rates.
EUR USD
Last week, the EUR traded 0.10% higher against the USD and closed at 1.3608. However, the single currency remained under pressure as a slew of dismal economic data fuelled concerns over the recovery in the region. The French current account deficit widened in May, while industrial production declined unexpectedly. In Germany, manufacturing turnover declined and industrial production slipped at the sharpest pace since April 2012 in May. Moreover, sentiments towards the Euro was hit by growing fears over financial troubles at the holding companies of Portugal's largest listed bank, Banco Espirito Santo. Meanwhile, the European Central Bank (ECB) Governing Council member, Ewald Nowotny, rejected calls for additional stimulus measures while another ECB official, Ignazio Visco hinted that the ECB would consider new policy measures, including quantitative easing program, to lift inflation rate in the economy to its 2.0% target. During the week, the pair traded at a high of 1.3652 and a low of 1.3576. The pair is expected to find its first support at 1.3572, with the next support expected at 1.3536. The first resistance is at 1.3648, and the next at 1.3688.
The Euro-zone’s consumer price inflation data would be the key trigger during this week’s market action.
GBP USD
In the last week, GBP traded 0.26% lower against the USD and closed at 1.7116, following the release of dismal economic data in the UK. Industrial production fell 0.7% (MoM) in May, following a revised rise of 0.3% recorded in April. On a similar note, manufacturing production on a monthly basis, dropped 1.3% in May, following a revised rise of 0.3% recorded in the preceding month. Trade deficit in UK widened to £2.4 billion in May. Meanwhile, industry think tank, the BCC warned that prematurely raising interest rates might disrupt economic recovery in the nation. At its policy meeting, the Bank of England (BoE) left its benchmark interest rate at a record low of 0.5% and the size of its asset purchase program unchanged at £375 billion. The Pound rose on Wednesday, after the BoE’s new Deputy Governor, Nemat Shafik, stated that the slack in the UK economy has considerably reduced and hinted that interest rate in the nation may be raised very soon. Also, the NIESR GDP report showed that economic recovery in the nation remained intact in Q1 2014. The pair traded at a high of 1.7170 and a low of 1.7085 in the previous week. GBPUSD is expected to find its first support at 1.7077, with the next at 1.7039. Resistance exists first at 1.7162, and then at 1.7209.
Ahead this week, market participants would keep a tab on consumer price inflation and labor market data in the UK, to gauge the pace of improvement in the nation.
USD JPY
The USD traded 0.74% lower against the JPY over the past week, closing at 101.30. Upbeat domestic data bolstered investors demand for local currency and led JPY to trade higher against the US Dollar. Consumer confidence in Japan improved to its highest level in six months in June. Meanwhile, on an annualized basis, the preliminary machine tool orders surged 34.2% in June. Trade deficit in Japan unexpectedly narrowed to ¥675.9 billion in May from a deficit of ¥780.4 billion recorded in the previous month. Additionally, the nation posted a current account surplus for the fourth consecutive month in May. Japan's economy watchers' assessment of current conditions improved in June, while its index for the future outlook weakened. The pair traded at a high of 102.22 and a low of 101.07. The pair is expected to find its first support at 100.84, with the next support expected at 100.37. The first resistance is at 101.99, and the next at 102.68.
The JPY is expected to take further cues from the BoJ monetary policy statement. Traders would also keep an eye on the Japanese industrial production data and the BoJ monthly economic survey ahead this week.
USD CHF
USD traded 0.21% lower against the CHF and closed at 0.8922 in the last week. In economic news, the Swiss consumer prices remained unchanged year-over-year in June, following the 0.2% rise in May. The Swiss real retail sales fell 0.6% (YoY) in May, missing market expectations for a 1.8% gain and in contrast to a 0.8% rise recorded in the previous month. Moreover, jobless rate in Switzerland remained unchanged in June, in line with market expectations. A separate data revealed that country’s foreign currency reserves climbed to CHF449.6 billion in June from CHF444.4 billion in the previous month. During the period, the pair traded at a high of 0.8961 and a low of 0.8900. The first support is at 0.8894, and the next at 0.8867. Resistance exists first at 0.8955, and then at 0.8989.
Apart from external cues, traders would keep an eye on Swiss economic releases which includes producer and import price data for June and ZEW economic expectations for July.
USD CAD
Last week, the USD traded 0.76% higher against the CAD and closed at 1.0734, as downbeat employment data from Canada weighed on demand for the Loonie. Data revealed that the number of employed people in Canada declined by 9,400 in June, missing market expectations for a 20,000 rise, after an increase of 25,800 in the previous month. Also, unemployment rate in Canada rose to 7.1% in June, from 7.0% in the previous month. Earlier in the week, the Ivey manufacturing PMI unexpectedly fell to a level of 46.9 in June, from a reading of 48.2 in the previous month. Moreover, the Moody’s Investors Service downgraded its outlook on the Canadian banking system, citing concerns over government’s plan to bail out banks in the event of a financial crisis. USDCAD traded at a high of 1.0739 and a low of 1.0627 in the previous week. The first support is at 1.0661, with the next at 1.0588. The first resistance is at 1.0773, while the next is at 1.0812.
Ahead this week, market participants would keep an eye on the Canadian consumer price inflation, manufacturing shipments and wholesale sales data for evaluating the nation’s macro profile.
Moreover, the Bank of Canada’s policy meeting will also remain decisive.
AUD USD
AUD traded 0.29% higher against the USD last week, and closed at 0.9392, following better-than-expected Australian economic data. Construction activity in the nation expanded for the first time in 2014 in June. Business confidence in Australia unexpectedly advanced to a reading of 8.0 in June, while business conditions rose to a level of 2.0 in June, compared to reading of -1.0 recorded in the previous month. Moreover, the Australian consumer sentiment index advanced to a reading of 94.9 in July from a reading of 93.2. A separate data revealed that the number of employed people in Australia increased, rising by 15,900 to 11.58 million in June. However, unemployment rate increased to a seasonally adjusted 6.0% in June from 5.9% in May. During the week, the Aussie came under pressure after data from China, Australia’s biggest trading partner, showed that consumer price inflation eased more-than-expected in June, while trade surplus unexpectedly narrowed. The pair traded at a high of 0.9459 and a low of 0.9340. The first support is at 0.9335, and the next at 0.9278. The first resistance is at 0.9454, and the next at 0.9516.
Moving ahead, the Reserve Bank of Australia’s minutes will remain crucial for the Australian Dollar. Market participants would also keep an eye on leading index data to be released by the Conference Board and the Westpac. Besides, the Chinese retail sales, industrial and GDP data this week will also be key.
Gold
In the prior week, Gold traded 1.28% higher against the USD and closed at 1337.40, amid signs that interest rates in the US will remain on hold for an extended period of time. Gold prices also rose on safe-haven buying after worries about Portugal's Banco Espirito Santo alerted investors of the potential contagion in the European banking sector. However, concerns eased slightly on Friday, after nation’s central bank indicated that it was satisfied that the Banco Espirito Santo would fulfill capital requirements on its own. Additionally, tensions in Israel and unrest in Iraq also supported gold prices. The yellow metal traded at a high of 1346.80 and a low of 1312.10 in the previous week. Gold is expected to find support at 1317.40 and the next at 1297.40. The first resistance is at 1352.10, while the next is at 1366.80.
Moving ahead this week, traders would keep a close tab on the Fed chief, Janet Yellen’s testimony. Additionally, retail sales, consumer sentiment and manufacturing reports, along with the Beige Book survey will be closely scrutinized by investors for further direction on the US economic recovery.
Crude Oil
Oil prices traded 2.83% lower against the USD in the last week and closed at USD100.83, as Libya resumed its oil production and as geopolitical concerns in the Middle East had limited impact on oil supply. Earlier, the Libyan interim Prime Minister, Abdullah Al-Thani acknowledged that authorities had regained control of two export terminals blocked by rebels. Oil traders estimated that opening of ports at Ras Lanuf and Al-Sidra could add about 500,000 barrels of crude oil per day to global energy markets. In its monthly report, the Organization of the Petroleum Exporting Countries (OPEC) reported that rising crude oil supplies from non-OPEC producers would be adequate to meet the expected growth in world oil demand in 2015. On the weekly oil inventory front, the Energy Information Administration reported that the crude stockpiles fell by 2.4 million barrels for the week ended July 4, while the American Petroleum Institute reported that US crude inventories declined 1.7 million barrels. Oil traded at a high of 104.20 and a low of 100.44 in the previous week. Oil has its first major support at 99.45, while the next support exists at 98.06. The first resistance is at 103.21, and the next at 105.58.
Oil prices would take cues from Fed chief, Janet Yellen’s testimony and the barrage of macroeconomic data from the US this week.
Good trades.
