Weekly Forex Update
The greenback registered gains against most of the major currencies on safe haven demand, as global growth concerns escalated during the week amid tensions over Ukraine-Russia issues and violence in the Gaza Strip. Investors risk sentiment was spooked, after US authorities indicated that Russia may provide more sophisticated weapons to Ukrainian separatists, while Israel rejected calls for a ceasefire and continued its ground offensive in Gaza.
On the other hand, positive economic data from the US painted a brighter picture for the economy and proved beneficial for the US dollar. Durable goods orders rebounded by more than expected in June, after reporting an unexpected drop in in the previous month. Initial jobless claims unexpectedly fell to lowest level in over eight years in the week ended July 19. Report by the US Labor Department revealed that initial jobless claims fell to 284,000, a decline of 19,000 from the previous week's revised level of 303,000. Meanwhile, another data showed a sign of steadying inflation in the US, as consumer prices excluding food and energy rose 0.1% in June, less than market expectations, easing pressure on the Fed regarding the timing of raising interest rates.
However, gains in the USD were limited following comments by the International Monetary Fund (IMF) earlier in the week, indicating that the Federal Reserve (Fed) may have scope to keep interest rates at zero for longer time.
The Euro failed to gain traction, amid rising speculation that the European Central Bank (ECB) will announce additional stimulus measures at its next policy meeting. Moreover, data on German business confidence fell short of market expectations, sparking fresh concerns about the pace of growth in the bloc.
In a noteworthy development, the European Union Council approved Lithuania to join the Euro-zone as its 19th member from January 1, 2015.
The Pound failed to gain traction against its US counterpart, as the minutes of the Bank of England’s (BoE) Monetary Policy Committee (MPC) latest policy meeting proved dampener for the local currency. Moreover, UK’s second quarter growth data showed no surprise, while retail sales for June disappointed.
The NZD fell sharply against the greenback after the Reserve Bank of New Zealand Governor, Graeme Wheeler, cautioned that the Kiwi dollar’s strength was “unjustified”, triggering speculation that central bank may intervene.
EUR USD
Last week, the EUR traded 0.70% lower against the USD and closed at 1.3430, as signs of escalating tensions between the West & Russia and Israel’s ground offensive on Gaza strip dampened investors risk appetite. The common currency lost ground after data indicated that consumer confidence in the Euro-zone deteriorated unexpectedly in July, adding to signs that recovery in the bloc continues to remain uneven and fragile. Also, gloomy German Ifo sentiment reports weighed on the Euro. The business confidence in Germany eased for the third successive month to its lowest level since October. Earlier in the week, the Bundesbank in its monthly report revealed that economic growth in the Euro-zone’s largest economy, Germany has deteriorated. However, the Euro area currency rose on Thursday after manufacturing activity in Germany expanded in July, while the nation’s services sector advanced at its fastest pace in three years. Additionally, manufacturing and services PMI in the Euro-zone rose more than expected in the same period. During the week, the pair traded at a high of 1.3550 and a low of 1.3420. The pair is expected to find its first support at 1.3383, with the next support expected at 1.3337. The first resistance is at 1.3513, and the next at 1.3597.
In the midst of deflationary concerns in the Euro-zone, market participants will keep a tab on preliminary annual inflation data. Additionally, employment data from Euro-zone and Germany will also attract market attention.
GBP USD
In the last week, GBP traded 0.66% lower against the USD and closed at 1.6975, as the BoE minutes, Britain’s second quarter growth data just meeting estimates and dismal June retail sales, failed to support the Pound. The BoE minutes revealed that policymakers were of opinion that any premature tightening in monetary policy could destabilize UK’s economic recovery. Moreover, BoE Governor Mark Carney added that the interest rate-hike will be strictly data-dependent and the central bank should focus on wage growth and inflation. In economic news, retail sales rose 0.1% in June, on a monthly basis, as compared to market expectations for 0.3% rise. The UK economy expanded 0.8% sequentially in the second quarter, in line with market expectations and compared to similar growth seen in the first quarter. The pair traded at a high of 1.7101 and a low of 1.6961 in the previous week. GBPUSD is expected to find its first support at 1.6924, with the next at 1.6872. Resistance exists first at 1.7064, and then at 1.7152.
During this week, UK’s consumer confidence and manufacturing activity data would help in determining the trend in the Sterling.
USD JPY
The USD traded 0.49% higher against the JPY over the past week, closing at 101.84, following upbeat data from the US that suggested that the Fed may raise its key interest rates sooner than expected. The Japanese Yen weakened against the greenback after adjusted merchandise trade deficit in Japan widened in June. Additionally, the manufacturing activity in the nation also dropped to a reading of 50.8 in July, following a reading of 51.5 in the previous month. Japan’s leading economic index declined to the lowest level since January 2013 while the coincident index edged up slightly in May. However, economic data release on Friday showed that consumer price inflation in Japan remained mostly in line with market estimates in June, capping losses in the Japanese Yen. In another key event, the IMF upgraded its economic growth forecasts for Japan to 1.6% in 2014, citing that the nation made significant progress earlier this year. However, the agency indicated that growth in the world’s third largest economy would decelerate to 1.1% in 2015. The pair traded at a high of 101.95 and a low of 101.19. The pair is expected to find its first support at 101.37, with the next support expected at 100.89. The first resistance is at 102.13, and the next at 102.42.
Ahead this week, market participants would eye retail sales, industrial production and housing data from Japan which could prove a key determinant for the Yen.
USD CHF
USD traded 0.71% higher against the CHF and closed at 0.9049 in the last week, as upbeat data from the US added to optimism over strength of the economy. Meanwhile, the Swiss Franc came under pressure, after data indicated that domestic trade surplus narrowed more than expected in June, as rising imports outstripped an increase in exports. During the week, the Swiss National Bank (SNB) Chairman Thomas Jordan echoed his earlier comments that the central bank would maintain a cap on the Swiss Franc of 1.20 per Euro to ensure price stability for the foreseeable future. In a key event, the SNB and the People’s Bank of China (PBoC) reached a currency swap agreement last week, a move that is expected to assist both the central banks to buy and sell their currencies up to CHF 21.0 billion and would also permit the SNB to invest in the Chinese bond market. During the period, the pair traded at a high of 0.9053 and a low of 0.8971. The first support is at 0.8996, and the next at 0.8942. Resistance exists first at 0.9078, and then at 0.9106.
Ahead this week, market participants will keep a close watch on UBS consumption and KOF leading indicator from Switzerland along with a slew of macroeconomic releases in the US for further direction.
USD CAD
Last week, the USD traded 0.74% higher against the CAD and closed at 1.0812, as sentiments towards the US economic outlook was lifted by a string of robust domestic economic data released over the week. Meanwhile, the Loonie failed to gain traction as risk appetite across the world sapped, amid ground offensive in Gaza and as the ongoing tensions in the Ukraine-Russia conflict worsened after the US intensified its charges on Russia’s involvement in the crash of a Malaysian passenger jet in rebel-held Ukraine leading to European Union imposing further sanctions on Russia. Moreover, the Canadian Dollar came under pressure after the IMF lowered Canada's growth forecast to 2.2% in 2014, from its previous estimate of 2.3%. In economic news, the Canadian retail sales rose 0.7% (MoM) in May, compared to a revised rise of 1.3% in the prior month. Markets were expecting retail sales to rise 0.6%. USDCAD traded at a high of 1.0823 and a low of 1.0709 in the previous week. The first support is at 1.0740, with the next at 1.0667. The first resistance is at 1.0854, while the next is at 1.0895.
Apart from external cues, the Loonie traders would keep a tab on the Canadian GDP data ahead this week.
AUD USD
AUD traded 0.06% higher against the USD last week, and closed at 0.9396, as economic data from China, Australia’s largest trading partner, boosted investors demand for Aussie. Manufacturing activity in China rose to an 18-month high reading of 52.0 in July. Also, the leading economic index in China climbed 1.3% in June, following an increase of 0.7% recorded in the preceding month. The AUD advanced after data revealed that inflation in Australia rose in the second quarter. The Australian inflation rose 0.5% in the three months to June, giving the Reserve Bank of Australia more room to keep interest rates at a record-low to support the economy. During the week, the pair traded at a high of 0.9477 and a low of 0.9359. The first support is at 0.9344, and the next at 0.9293. The first resistance is at 0.9462, and the next at 0.9529.
In the week ahead, investors have their plate full with a raft of economic data scheduled for release in Australia including new home sales, building permits and manufacturing data.
Gold
In the prior week, Gold traded 0.43% lower against the USD and closed at USD1305.30, as the greenback strengthened following upbeat economic data from the US. Meanwhile, a leading broker projected gold prices to fall to $1,050 by the end of 2014. Moreover, waning physical demand also weighed on the gold prices, as the China Gold Association indicated that demand for gold in China, plunged 19.4% in the in the first half of 2014. The yellow metal traded at a high of 1320.40 and a low of 1289.40 in the previous week. Gold is expected to find support at 1289.67 and the next at 1274.03. The first resistance is at 1320.67, while the next is at 1336.03.
The Fed’s interest rate decision and its monetary policy statement are expected to be the key determinants this week, as another reduction in the size of the bond purchases would further weigh on gold prices. Moreover, traders would also keep a tab on US nonfarm payrolls and second quarter growth data.
Crude Oil
Oil prices traded 1.01% lower against the USD in the last week and closed at USD102.09, reversing the gains recorded earlier in the week as geopolitical concerns in Ukraine and deteriorating relations between Russia and the US raised fears of supply disruptions in the market. Oil prices also came under pressure, amid speculation that rising US gasoline stockpiles would reduce oil demand in the world’s biggest oil consumer. The Energy Information Administration (EIA) reported that the US gasoline inventories expanded by 3.38 million barrels to 217.9 million for the week ending July 18. Meanwhile, the EIA reported that crude oil stockpiles unexpectedly fell for the fourth consecutive week by 4 million barrels to 371.1 million barrels last week. Also, the American Petroleum Institute revealed that crude oil stockpiles fell 0.6 million barrels last week to 374.7 million barrels. Oil traded at a high of 105.25 and a low of 101.00 in the previous week. Oil has its first major support at 100.31, while the next support exists at 98.53. The first resistance is at 104.56, and the next at 107.03.
In the week ahead, market participants will keenly await data from US, especially growth and the nonfarm payrolls data for hints on the strength of nation’s economic recovery. Moreover, US Fed’s interest rate decision will be keenly awaited. Geopolitical tensions in Ukraine and Gaza strip would also remain in focus, as any flare-up in situation could send oil prices higher.
Good trades.
