Weekly Forex Update
The greenback ended mixed against most of the major currencies last week, after trading higher against most of the major currencies earlier in the week as heightened geopolitical tensions underpinned safe haven demand.
The USD came under pressure on Friday, following a flurry of disappointing US economic data and dovish comments from a Federal Reserve (Fed) official. The preliminary Thomson Reuters and the University of Michigan consumer sentiment index unexpectedly deteriorated in August. Meanwhile, manufacturing conditions in the New York region expanded but at a slower pace than expected.
The Minneapolis Federal Reserve President, Narayana Kocherlakota indicated that the Fed won’t reach its target of 2% inflation till 2018 because of continued weakness in the job market and hinted that the central bank should keep its monetary stimulus as long as inflation stays low.
In other economic data from the US, weekly initial jobless claims rose more than expected to 311,000, an increase of 21,000 from last week’s revised level of 290,000, in the week ended 9 August 2014. Business inventories in the US rose 0.4% in June, as expected and after rising 0.5% in May. Meanwhile, retail sales in the US stagnated in July. Mortgage applications unexpectedly fell 2.7% in the nation for the week to 8 August. The US reported a budget deficit of $94.6 billion in July, compared to a surplus of $ 70.5 billion in the previous month. The NFIB small business optimism in the US rose less-than-expected in July to 95.7, from 95.0 a month ago.
The Euro came under pressure, after the second quarter GDP data in major Euro-zone economies disappointed investors, raising concerns that the region's meager recovery has lost momentum. Consumer price inflation in the Euro-region moved further down from the European Central Bank's (ECB) target, raising fears of growing deflationary threats in the region. The ZEW indicator of economic sentiment in the Euro-zone and Germany dropped significantly in July.
The Pound backpedalled last week against the USD, following a dovish comments from the Bank of England (BoE) chief, Mark Carney indicating that he would consider workers’ wages picking up when considering whether or not to increase interest rates.
The Yen took breather against the USD, after date revealed that the Japanese economy contracted sharply in the second quarter, though the fall in the GDP was lesser than expected.
The Canadian Dollar advanced, after a revised employment data indicated that the Canadian economy added more jobs than expected in July.
EUR USD
Last week, the EUR traded 0.07% lower against the USD and closed at 1.3401, after data indicated that the Eurozone recovery came to a halt unexpectedly in the second quarter, as the German economy contracted more-than-expected in the second quarter, while the French economy stagnated for the second straight quarter. Moreover, inflation in the Eurozone slowed as initially estimated in July to the lowest since late 2009, keeping the pressure on the central bank to initiate more monetary stimulus. Additionally, the European Central Bank, in its monthly report, affirmed that geopolitical tensions in Eastern Europe along with weakness in emerging economies were posing a major challenge to the region’s recovery prospects. Industrial production in the region unexpectedly fell in June, adding to signs that the region's economy is struggling. During the week, the pair traded at a high of 1.3416 and a low of 1.3336. The pair is expected to find its first support at 1.3353, with the next support expected at 1.3304. The first resistance is at 1.3433, and the next at 1.3464.
Going forward this week, investors have their plate full with a raft of manufacturing PMI data scheduled for release across the Europe. Additionally, Euro-zone consumer confidence and traded balance data will be closely watched.
GBP USD
The GBP traded 0.48% lower against the USD and closed at 1.6693, after the BoE chief, Mark Carney pledged that the central bank officials would not rush to raise interest rates, citing overseas risks to Britain’s recovery and the weakness in the nation’s wage growth. In economic news, second estimates from the Office for National Statistics showed that the UK economy grew 0.8% (QoQ) in the second quarter, as initially estimated. The BRC like-for-like sales in UK fell 0.3% (YoY) in July. The labor market report indicated that the UK unemployment rate slipped to 6.4% for the three months period ended June, while the number of people seeking jobless benefits declined by 33.6K in July, while it was forecast to drop by 30.0K. Elsewhere, the RICS reported that house price balance in the UK eased in July. The CB leading economic index in the UK rose at a faster rate in June, recording a rise of 0.6% (MoM) in June. The pair traded at a high of 1.6846 and a low of 1.6655 in the previous week. GBPUSD is expected to find its first support at 1.6617, with the next at 1.6540. Resistance exists first at 1.6808, and then at 1.6922.
Market participants would keep a tab this week on domestic consumer price inflation and retail sales data. Moreover, the minutes of BoE’s latest monetary policy meeting would also remain crucial for the Pound.
USD JPY
The USD traded 0.31% higher against the JPY over the past week, closing at 102.36. The Yen retreated following disappointing domestic economic data. Machinery orders in Japan advanced less-than-expected in June, while industrial output fell more than market estimations. Additionally, capacity utilization slid 3.3% in June, compared to a drop of 0.7% in the previous month. Moreover, the Japanese GDP dropped by 1.7% in Q2, on a quarterly basis, compared to 1.6% contraction expected by market. The minutes of the latest Bank of Japan (BoJ) policy meeting revealed that policymakers foresee a fading impact of the sales tax hike and reiterated that its ultra-loose monetary policy is having the desired impact on the nation’s economy and that it will achieve the 2% inflation target by 2015. The minutes further revealed that the central bank has lowered the nation’s growth forecast for 2014. The pair traded at a high of 102.73 and a low of 102.02. The pair is expected to find its first support at 102.01, with the next support expected at 101.65. The first resistance is at 102.72, and the next at 103.08.
Ahead this week, market participants would eye the Japanese trade data along with domestic manufacturing report.
USD CHF
USD traded 0.31% lower against the CHF and closed at 0.9026 in the last week. In the Swiss macro-economic news, producer and import price index fell 0.8% (YoY) in July, against a similar fall in the previous month. The economic expectations index in Switzerland rose to a reading of 2.5 in August, higher than market expectations of a drop to -1.0. It had recorded a level of 0.1 in the prior month. Additionally, retail sales rose 3.4% (YoY) in June, compared to a 0.5% fall in the previous month and surpassing market expectations for a 0.8% gain. During the period, the pair traded at a high of 0.9105 and a low of 0.9022. The first support is at 0.8997, and the next at 0.8968. Resistance exists first at 0.9080, and then at 0.9134.
Apart from external cues, traders would keep an eye on the Swiss trade balance data for July.
USD CAD
Last week, the USD traded 0.69% lower against the CAD and closed at 1.0897. The Canadian Dollar rose after a revised employment report showed that employers in Canada added more jobs than expected in July. Statistics Canada on Friday reported that the economy added 41,700 jobs in July, after incorrect figures were reported week ago that showed a gain of 200 jobs and ahead of expectations for jobs growth of 20,000. The unemployment rate fell to 7.0% in July from 7.1%, was not affected by the correction. Additionally, Statistics Canada on Friday reported that manufacturing sales rose 0.6% in June to $52 billion, the fifth increase in six months. In other domestic news, the Canadian new housing price index registered a 0.2% (MoM) rise in June, while a seasonally adjusted housing starts rose unexpectedly in July. USDCAD traded at a high of 1.0979 and a low of 1.0858 in the previous week. The first support is at 1.0844, with the next at 1.0790. The first resistance is at 1.0965, while the next is at 1.1032.
This week, the Canadian inflation data will be on investors’ radar. Additionally, domestic retail sale report would also be a key determinant for the Loonie.
AUD USD
AUD traded 0.51% higher against the USD last week, and closed at 0.9322, as upbeat domestic data lent support to the Australian Dollar. The Australian business confidence rose to an eleven month high in July, while house price index advanced at a stronger than expected pace for the second quarter. The Westpac/Melbourne Institute consumer sentiment index advanced 3.8% (MoM) to 98.5 in August from 94.9. However, risk-off sentiment prevailed among traders on Friday, amid fears that the conflict between Ukraine and Russia would escalate after Ukrainian forces attacked and partly destroyed a Russian armored convoy that entered Ukrainian territory overnight. During the week, the pair traded at a high of 0.9336 and a low of 0.9247. The first support is at 0.9267, and the next at 0.9213. The first resistance is at 0.9356, and the next at 0.9391.
Apart from key macro releases from the US this week, the Reserve Bank of Australia’s latest policy meeting minutes will be on investors’ radar. Additionally, the Westpac leading index and the Conference Board leading indicator data would also prove a key determinant for the Aussie.
Gold
In the prior week, Gold traded 0.37% lower against the USD and closed at USD1306.20, on the back of a slump in physical demand and amid profit-taking. The World Gold Council quarterly report released last Thursday revealed that the global demand for gold declined by 16% (YoY) in the second quarter of 2014 to 964 tons. However, geopolitical concerns in Ukraine, Gaza, Syria and Iraq supported gold prices, as traders remained indifferent to the developments compared to the previous week. Traders continued to get mixed signals from the Federal Reserve on interest rates, as St. Louis President, James Bullard stated that the central bank would raise interest rates by March 2015, while the Minneapolis Fed chief, Narayana Kocherlakota indicated that the Fed won’t reach its target of 2% inflation till 2018 because of continued weakness in the job market and hinted that the central bank should keep its monetary stimulus as long as inflation stays low. The yellow metal traded at a high of 1321.80 and a low of 1293.00 in the previous week. Gold is expected to find support at 1292.20 and the next at 1278.20. The first resistance is at 1321.00, while the next is at 1335.80.
Traders were cautious ahead of uncertainty over the outcome of central bankers’ symposium at Jackson Hole, with spotlight on the Fed Chair, Janet Yellen, who will speak in her first appearance as head of the US central bank. Gold traders will also pay close attention to the minutes of the Fed’s July policy meeting for further clues about the timing of future interest rate hikes.
Crude Oil
Oil prices traded 0.31% lower against the USD in the last week and closed at USD97.35, as weekly US stockpiles report added to the bearish sentiment, with larger reserves hinting at easing demand for the commodity. Disappointing growth data from Euro-zone and its member nations also dampened future oil demand. The US Energy Information Administration (EIA) reported that the crude oil inventories in the US unexpectedly rose 1.4 million barrels for the week ended August 8, against market expectations of a 2.02 million barrels decline. The American Petroleum Institute (API) reported that the US crude inventories rose by 229,000 barrels to 364.2 million for the similar period. The crude prices also came under pressure after the International Energy Agency (IEA) slashed its global oil demand forecast for 2014 by 180,000 barrels per day to 1.0 million. However, oil prices rallied on Friday, on news that Ukrainian troops attacked a Russian armored vehicles, underlining fears that the conflict will escalate and disrupt crude shipments from Russia. Oil traded at a high of 98.58 and a low of 95.26 in the previous week. Oil has its first major support at 95.55, while the next support exists at 93.74. The first resistance is at 98.87, and the next at 100.38.
Traders would focus on economic data from the US and will keep a tab on further developments in Eastern Europe and Middle East, for further guidance. Traders will focus on inflation and manufacturing data along with other economic events in the US.
Happy pips.
