Weekly Forex Update
The US Dollar continued its upward trajectory against its major peers last week, following the release of robust US economic data. The upbeat ISM reports indicated that the pace of manufacturing and services sector activity in the US improved unexpectedly in August. Another report showed that US factory orders improved sharply in July. Additionally, US construction spending report showed a sharp rebound in July. Separately, the US Fed’s Beige Book survey indicated that the US economy grew at a “moderate” pace across most of the Fed districts.
The USD also rose after the Dallas Federal Reserve President, Richard Fisher, hinted that inflation and improving labor market dynamics is building up pressure on the US Fed to raise its key interest rate sooner than expected. However, the Minneapolis Federal Reserve President, Narayana Kocherlakota, stated that central bank’s interest rate is not low enough to improve the nation’s inflation rate and employment conditions and the Fed must take more measures to boost domestic growth.
Moreover, risk aversion increased after prospects of a ceasefire between Russia and Ukraine were dented after the Russian Foreign Minister, Sergei Lavrov, cautioned NATO not to offer membership to Ukraine.
However, the greenback came under pressure on Friday, after report by the Labor Department revealed that the non-farm payroll employment in the US increased by much less than expected in August. Earlier on Thursday, the ADP report showed that though private sector employment in the US rose in August, the pace of job growth came in below market estimates. Meanwhile, initial jobless claims rose more than expected in the week ended August 30.
The Euro came under pressure against the greenback after the European Central Bank (ECB) delivered a fresh round of stimulus and pledged even more if needed, in an effort to keep too-low inflation from derailing the Euro-zone's weak economy.
The Bank of England (BoE), in its monetary policy meeting, held its key interest rate at 0.5% and maintained its asset purchase facility steady at £375 billion, in line with market expectations. In a noteworthy development, a poll result revealed increased support for Scottish independence ahead of the referendum on 18 September 2014.
Similarly, the board members of the Bank of Japan (BoJ) kept its monetary policy unchanged, retaining its existing policy of expanding monetary base at an annual rate of ¥60-70 trillion and kept its key interest rate unchanged in the range of 0.0 to 0.1%.
The Swiss Franc slipped against the USD, after domestic economic data revealed that the Swiss economy stalled in the second quarter. The Canadian and the Kiwi Dollar recorded losses. The Australian Dollar rose against the USD, as upbeat second quarter GDP data in Australia boosted the domestic currency.
EUR USD
Last week, the EUR traded 1.38% lower against the USD and closed at 1.2951, after the ECB surprisingly announced a cut in interest rates to fresh record lows and announced plans to buy asset-backed securities (ABS) and covered bonds in October. The refinancing rate was trimmed to 0.05%. The marginal lending facility rate was cut by ten basis points to 0.30%, while the deposit rate was lowered by ten basis points to a negative 0.2%. Moreover, the ECB downgraded its GDP and inflation projections for 2014. Disappointing economic data from the region further dented sentiments. Markit manufacturing and services PMI from Euro-zone and Germany recorded lower than expected numbers, while the Eurostat revealed that retail sales in the Eurozone declined more than expected in July. Meanwhile, unemployment in France rose in the second quarter. A separate report from the Eurostat indicated that investments and inventories declined and state spending eased in the region in the second quarter. During the week, the pair traded at a high of 1.3161 and a low of 1.2920. The pair is expected to find its first support at 1.2860, with the next support expected at 1.2770. The first resistance is at 1.3101, and the next at 1.3252.
Data including the Sentix investor confidence, employment, industrial production and the ECB monthly report are the main triggers for this week’s trading session. Additionally, inflation and trade data from Germany also remain crucial to determine short term trends for the Euro.
GBP USD
In the last week, GBP traded 1.63% lower against the USD and closed at 1.6327, inching closer to the 1.63 mark, with the BoE's decision unsurprisingly bringing no news. The Pound also came under pressure, after a poll survey released earlier last week showed increased support for Scottish independence. Though the Pound fell against the USD, as the BoE adopted a wait and watch approach, data released earlier this week indicated that services and construction activity in the UK rose unexpectedly in August. Manufacturing PMI in the UK eased unexpectedly, although it continued to remain in the expansion phase. However, the number of mortgage approvals dropped in July, highlighting uncertainty in the housing market. The pair traded at a high of 1.6645 and a low of 1.6281 in the previous week. GBPUSD is expected to find its first support at 1.6190, with the next at 1.6054. Resistance exists first at 1.6554, and then at 1.6782.
Ahead in the week, investor’s focus would invariably revolve around inflation report hearing and the NIESR GDP estimate. Also industrial, manufacturing and trade data will be key for the Pound. Additionally, traders will keep a watch on upcoming Scottish referendum results on September 18.
USD JPY
The USD traded 0.96% higher against the JPY over the past week, closing at 105.09. The JPY fell after data indicated that the final manufacturing PMI in Japan eased to a reading of 52.2 in August. Also, the Japanese service PMI recorded a drop in August. The Bank of Japan (BoJ) in its latest monetary policy statement kept its key interest rate in the range of 0.0 to 0.1% unchanged and also announced its decision to retain its policy of expanding monetary base at an annual rate of ¥60-70 trillion. Additionally, the central bank maintained its view on the Japanese economy, indicating that the economy has continued to recover “moderately”. Meanwhile, the BoJ Governor, Haruhiko Kuroda, stated that weakness in the Japanese Yen was good for the economy as it would additionally support the nation’s exports. Also, the monthly economic survey released by the Japanese central bank reiterated that domestic consumption is showing signs of resilience and company profits are improving. The pair traded at a high of 105.72 and a low of 104.10. The pair is expected to find its first support at 104.22, with the next support expected at 103.34. The first resistance is at 105.84, and the next at 106.59.
Apart from external cues, traders would keep an eye this week on Japanese economic data which includes consumer confidence and industrial production data.
USD CHF
USD traded 1.40% higher against the CHF and closed at 0.9311 in the last week. The Swissy came under pressure after domestic data revealed that economic growth in Switzerland stalled unexpectedly in the second quarter, mainly due to a slowdown in export growth and a fall in domestic construction spending. Additionally, Swiss manufacturing PMI released earlier in the week showed that the pace of activity slowed more than expected in August. However, reports from the Federal Statistical Office showed that industrial production in Switzerland rose at a faster rate in the second quarter. During the period, the pair traded at a high of 0.9337 and a low of 0.9174. The first support is at 0.9211, and the next at 0.9111. Resistance exists first at 0.9374, and then at 0.9437.
Moving forward, the Swiss inflation, retail sales and unemployment rate data will be key for the Swiss Franc against the majors.
USD CAD
Last week, the USD traded tad higher against the CAD and closed at 1.0880. The Canadian Dollar traded lower on Friday following the release of dismal jobs and manufacturing data in Canada, boosting speculation that the central bank may raise interest rates soon. Statistics Canada reported that, the net number of people employed fell by 11.0 K in Canada, in August, compared to market expectations of an advance of 10.0 K jobs. Additionally, the seasonally adjusted Ivey PMI fell unexpectedly to a level of 50.9 in August, compared to market expectations of a rise to a level of 55.3. The Ivey PMI had recorded a reading of 54.1 in the prior month. Earlier in the week, the Loonie rose against the greenback, as hawkish Bank of Canada’s (BoC) latest monetary policy statement supported the local currency. The central bank maintained its key interest rate unchanged at 1%, in line with market expectations. However, in its policy statement the BoC indicated that exports surged during the second quarter which could translate into higher business investments and an improvement in employment opportunities. It further stated that the central bank might have to tighten its monetary policy stance if imbalances in the nation’s housing market go beyond the tolerance zone. USDCAD traded at a high of 1.0944 and a low of 1.0819 in the previous week. The first support is at 1.0818, with the next at 1.0756. The first resistance is at 1.0943, while the next is at 1.1006.
Ahead this week, market participants will keep a close watch on the Canadian housing reports along with a slew of macroeconomic releases in the US for further direction.
AUD USD
AUD traded 0.42% higher against the USD last week, and closed at 0.9378, as stronger than expected second quarter growth data in Australia helped the domestic currency to record weekly gains. Additionally, the seasonally adjusted building approvals unexpectedly advanced on a monthly basis in Australia in July. The AiG construction and services PMI in Australia expanded at an accelerated pace in August. Also, the trade deficit narrowed unexpectedly in July. Retail sales rose a seasonally adjusted 0.4% (MoM) in July, in line with market expectations. The Reserve Bank of Australia, in its monetary policy meeting kept the key interest rate unchanged at 2.50%. In the monetary policy statement, the RBA Governor, Glenn Stevens, indicated that the central bank is expected to keep its accommodative policy for some time. During the week, the pair traded at a high of 0.9403 and a low of 0.9263. The first support is at 0.9293, and the next at 0.9208. The first resistance is at 0.9433, and the next at 0.9488.
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 1.56% lower against the USD and closed at USD1267.30, as greenback strengthened following the release of mostly upbeat economic data. Moreover, outlook towards the US economy strengthened after Federal Reserve’s Beige Book revealed that all regions were growing at a modest pace and consumer spending has increased in most of the twelve US districts. However, Gold prices bounced back on Friday, as US Dollar came under pressure following the release of weaker than expected US nonfarm payrolls data for August. The yellow metal also found some support following the news of bombings across Iraq, killing some influential leaders and as the European Union imposed a fresh round of economic sanctions despite after Moscow signing up for a ceasefire agreement. The yellow metal traded at a high of 1290.90 and a low of 1258.00 in the previous week. Gold is expected to find support at 1253.23 and the next at 1239.17. The first resistance is at 1286.13, while the next is at 1304.97.
Ahead this week, US monthly budget, retail sales and consumer sentiment index will be closely watched for further direction.
Crude Oil
Oil prices traded 2.78% lower against the USD in the last week and closed at USD93.29, as the greenback strengthened on upbeat US economic data. Oil prices came under pressure earlier in the week after news that Chinese manufacturing PMI fell to a three-month low, indicating lower demand. Also, the Organization of the Petroleum Exporting Countries (OPEC) reported total August production to be 31 million barrels per day (bpd), putting further downward pressure on oil prices. In the US oil inventory news, the Energy Information Administration reported that crude oil inventories dropped less than expected by 0.9 million barrels during the week ended 29 August against market anticipation for 2 million barrels decline. Meanwhile, the American Petroleum Institute reported that the US crude inventories fell by 545,000 barrels in the similar week. Oil traded at a high of 95.91 and a low of 92.68 in the previous week. Oil has its first major support at 92.01, while the next support exists at 90.73. The first resistance is at 95.24, and the next at 97.19.
In the week ahead, investors would focus on retail sales and consumer sentiment data from the US for further indications on the strength of the economic recovery and the possible future path of monetary policy.
Happy pips.
