Weekly Forex Update
For the week ended August 8, the US Dollar registered gains against its key peers, following the release of better-than-expected US economic data. Heightened geopolitical tensions across the globe also supported the greenback against riskier currencies.
The US Dollar also gained, after Dallas Fed President Richard Fisher hinted that if economic data from the US continue to paint a rosy picture of the economy, then the central bank would be forced to hike its key interest rate earlier than expected.
In the US, the seasonally adjusted initial jobless claims dropped unexpectedly by 14,000 to a level of 289.0K in the week ended August 2. Markets were anticipating the number claims to rise to a level of 304.0K. Labor productivity increased by more-than-anticipated in the second quarter, climbing 2.5% compared to market estimates for an increase of about 1.5%. The US trade deficit unexpectedly narrowed in June, while factory orders rebounded. Activity in the US service sector expanded at a faster rate in July. Similarly, consumer credit in the US rose by USD 17.255 billion in June, however the rise was lower than market expectations.
Meanwhile, concerns over rising geopolitical tensions dominated market sentiment last week, after the US launched airstrikes in Iraq to thwart the advancing Islamic militants and protect American personnel and local minorities. Additionally, a breakdown in the ceasefire between Israel and Gaza also fuelled risk aversion. Tensions between Russia and West grew, after former responded to European sanctions by initiating their own sanctions, blocking imports of food from the European Union (EU).
The Euro came under pressure, after the European Central Bank (ECB) President, Mario Draghi warned that the Euro-zone’s economic recovery remains weak, fragile and uneven, citing recent weak economic data and rising global geopolitical tensions. However, he gave no indication on any further economic stimulus and said that the ECB will be evaluating more data before taking additional measures.
At its policy meeting, the ECB kept its interest rates unchanged at 0.15% and kept its deposit rate and marginal lending rate unchanged at negative 0.1% and 0.4%, respectively. Moreover, economic data released last week from the Euro-zone were mostly disappointing. However, the common currency rose on Friday, following encouraging economic data from Germany and France. Data indicated that exports in Germany rose more than expected in June, while industrial output in France recovered at a faster than anticipated pace. Separately, another data indicated that trade surplus in China widened unexpectedly in July, boosted by a faster pace of rise in exports.
In UK, despite the strong pace of economic recovery augmenting speculation for a rate hike this year, the Bank of England (BoE) kept its key interest rate at a record low at 0.50%.
EUR USD
Last week, the EUR traded 0.13% lower against the USD and closed at 1.3410, following bearish comments by the ECB chief, Mario Draghi. He cautioned that risks to the Euro-area’s economic recovery has increased because of crises in Ukraine and the Middle East. The Euro was also hit in part by renewed debt worries after a state bailout of Portuguese largest bank, Banco Espirito Santo SA. Dismal Euro-zone services PMI, disappointing German factory orders and widening trade deficit in France also weighed, raising doubts over the growth prospects of the Euro bloc. Adding to investor’s woes, Italy's economy contracted for the second quarter in a row. The Italian GDP fell by a seasonally adjusted 0.2% in the Q2 of 2014, compared to a decline of 0.1% in the previous quarter. However, the common currency rose on Friday, following encouraging economic data from Germany and France. During the week, the pair traded at a high of 1.3433 and a low of 1.3332. The pair is expected to find its first support at 1.3350, with the next support expected at 1.3291. The first resistance is at 1.3451, and the next at 1.3493.
Moving ahead, apart from the ECB’s monthly report, investors’ would keep a tab on the second quarter GDP data from the Euro-zone and Germany. Moreover, inflation data from Euro-zone would also generate market interest.
GBP USD
In the last week, GBP traded 0.29% lower against the USD and closed at 1.6773, following the release of disappointing domestic data in the UK. The visible trade deficit in the UK widened more-than-expected to £9.4 billion in June from £9.2 billion in May. The BRC retail sales data surprised traders on the downside. Industrial and manufacturing production in the nation grew less-than-expected in June. Sentiments dented after the economic thin-tank, the National Institute of Economic and Social Research (NIESR) reported that the UK economy grew at a slower pace in the three months to July than in the June quarter. Earlier in the week, Moody’s Investors Service trimmed its outlook for the UK banking system to ‘Negative’ from ‘Stable’, citing new rules by Britain's financial regulator to prevent the use of taxpayer funds to support failed institutions and increased credit risk due to banks' exposure to fines and lawsuits. At its policy meeting, the nine-member Monetary Policy Committee kept its key bank rate unchanged at 0.50% and the asset purchase programme at £375 billion. The pair traded at a high of 1.6890 and a low of 1.6766 in the previous week. GBPUSD is expected to find its first support at 1.6729, with the next at 1.6686. Resistance exists first at 1.6853, and then at 1.6934.
Investors look forward to the central bank’s quarterly inflation report this week along with the BoE Governor, Mark Carney’s speech. Sterling is also expected to take cues from the GDP and employment data from the UK.
USD JPY
The USD traded 0.56% lower against the JPY over the past week, closing at 102.04. The Yen rose on safe haven demand amid escalating geopolitical tensions over the Russia-West economic sanctions against each other and after US authorized air strikes against the ISIS militants in Iraq. The Yen was also aided on positive economic from Japan. The services sector activity in Japan swung to expansion in July, while nation’s leading index rose for the first time in five months in June. Japan's economy watchers' assessment of current conditions improved notably in July. Separate data revealed that Japan’s trade deficit narrowed more-than-expected in June. The latest Bank of Japan’s (BoJ) monetary policy statement revealed that officials unanimously voted in favor of continuing the ultra-loose monetary stimulus programme. Furthermore, the BoJ raised its assessment of incomes and employment. However, the central bank indicated that the nation’s exports and industrial output have shown some weakness, citing growing geopolitical risks. The pair traded at a high of 102.94 and a low of 101.51. The pair is expected to find its first support at 101.38, with the next support expected at 100.73. The first resistance is at 102.82, and the next at 103.60.
Going forward, investors have their plate full with a raft of economic data including Japan’s machinery orders, industrial production and second quarter growth data. Additionally, market participants would also keep a tab on the minutes of BoJ’s latest policy meeting.
USD CHF
USD traded 0.06% lower against the CHF and closed at 0.9054 in the last week. In economic news, the UBS real estate bubble survey in Switzerland indicated that prospects of an asset bubble like situation in the nation had strengthened slightly in the second quarter, increasing market concerns. Data released by the Federal Statistical Office revealed that consumer prices continued to drop in July, in line with market expectations. Meanwhile, the SECO consumer sentiment index weakened further in July, defying expectations for an improvement. A separate data revealed that the seasonally adjusted unemployment rate in Switzerland remained unchanged as expected in July at 3.2%. The SVME manufacturing PMI rose to a 3-month high to 54.3 in July. During the period, the pair traded at a high of 0.9117 and a low of 0.9032. The first support is at 0.9018, and the next at 0.8983. Resistance exists first at 0.9103, and then at 0.9153.
Apart from domestic economic data, traders would focus on the global news ahead in the week.
USD CAD
Last week, the USD traded 0.52% higher against the CAD and closed at 1.0973. The Loonie came under pressure after data revealed that the Canadian economy added fewer-than-expected jobs in July, underlining concerns over the outlook for economic growth. Statistics Canada reported that the Canadian economy created a net 200 jobs in July, far less than analysts had expected. However, unemployment rate dipped to 7.0% in July from 7.1%. In other economic news, Canada’s merchandise trade balance recorded an unexpectedly large trade surplus of C$1.86 billion, compared to a surplus of C$0.58 billion in previous month. The building permits in Canada unexpectedly rose 13.5% in June, on monthly basis, compared to an advance of 15.4% in the previous month. The seasonally adjusted Ivey manufacturing PMI in Canada advanced at the fastest pace in three months in July to 54.1. USDCAD traded at a high of 1.0988 and a low of 1.0901 in the previous week. The first support is at 1.0920, with the next at 1.0867. The first resistance is at 1.1007, while the next is at 1.1041.
Ahead in the week, traders would focus on the Canadian housing data for further guidance.
AUD USD
AUD traded 0.40% lower against the USD last week, and closed at 0.9275, after a disappointing employment report revived expectations that the Reserve Bank of Australia (RBA) may cut interest rates again from the current record low. Data revealed that despite rise in full-time employment, the jobless rate in Australia jumped to the highest level in 12 years in July to 6.4%, as a sharp decline in part-time employment resulted in the total number of employed people to drop surprisingly in July. In its policy meeting, the RBA left its key interest rate unchanged at record-low at 2.50% as widely expected. The RBA Governor, Glenn Stevens, stated that the continued low interest rates were expected to help economic growth in Australia to strengthen over time, although growth was expected to be a little below trend over the year ahead. During the week, the pair traded at a high of 0.9375 and a low of 0.9238. The first support is at 0.9217, and the next at 0.9159. The first resistance is at 0.9354, and the next at 0.9433.
The Westpac consumer confidence and the NAB’s business confidence report later this week remain the main domestic triggers to determine the near term trend for the Aussie.
Gold
In the prior week, Gold traded 1.25% higher against the USD and closed at USD1311.00, on safe haven demand, amid continuing geopolitical instability, including escalating tensions in Iraq, Gaza and Ukraine. Last week, the US President Barack Obama gave the go-ahead for air strikes on jihadist positions in northern Iraq to protect American personnel and religious minorities. Meanwhile, tensions heightened between Russia and the West, after former retaliated against tough new Western sanctions, banning most food imports from the US and the European Union (EU) and threatening to block flights over its airspace. Additionally, risk-off sentiment took center stage, following the news that Russian troops were being deployed on the Ukrainian border. Elsewhere, hostilities continued on Gaza strip after Israeli warplanes struck targets in retaliation of Palestinian cross-border rocket attacks. The yellow metal traded at a high of 1324.30 and a low of 1283.30 in the previous week. Gold is expected to find support at 1288.10 and the next at 1265.20. The first resistance is at 1329.10, while the next is at 1347.20.
In the week ahead, market participants will continue to pay close attention to US economic data for further indications on the strength of the economy and the future course of monetary policy.
Crude Oil
Oil prices traded 0.23% lower against the USD in the last week and closed at USD97.65. However, oil prices rose earlier amid concerns over supply of crude oil from Iraq, the second-largest member in the Organization of Petroleum Exporting Countries (OPEC), after US President authorized air strikes to halt a Sunni insurgency to protect Iraqi civilians and the US personnel in Iraq. Moreover, fighting resumed in Gaza between Palestinian militants and Israel, while ongoing tensions between Russia and the EU/US further pushed oil prices higher. Meanwhile in its monthly report, the OPEC trimmed its 2014 global oil demand growth forecast for a second consecutive month to 1.10 million barrels per day (bpd), down 30,000 bpd, citing weaker-than-expected US demand. On an inventory front, the Energy Information Administration (EIA) reported that US oil stockpiles dropped more than expected by 1.8 million barrels in the week ended August 1. Meanwhile, data from the American Petroleum Institute (API) indicated a decline of 5.5 million in US crude inventories for the same week. Oil traded at a high of 98.67 and a low of 96.55 in the previous week. Oil has its first major support at 96.58, while the next support exists at 95.50. The first resistance is at 98.70, and the next at 99.74.
Traders would keep a watchful eye on the situation in Iraq, Ukraine and Gaza, as any flare-up in the situations could send oil prices higher.
Good trades.
