Weekly Forex Update
The greenback continued its winning streak against most of the major currencies last week, amid expectations that the Federal Reserve (Fed) would cut its asset purchase program by another $10 billion at its upcoming policy meeting, keeping it on track for winding up the program in October, and start raising interest rates in mid-2015. Moreover, economic data on Friday showed that the US retail sales rose in August. A separate report revealed that consumer sentiment advanced to a 14-month high in September.
The USD also rose on safe haven demand amid rising geopolitical risks in Scotland, Russia and the Middle East. The upcoming referendum on Scotland's independence would again remain highlight of week after a weekend poll showed separatists taking a narrow lead. Also in last week, market participants saw Western nations tightening their stance on the Russian sanctions, while the US President Barack Obama announced that the US will “lead a broad coalition” to destroy the militants operating in Syria and Iraq.
The European Central Bank (ECB) President, Mario Draghi, last week urged its member nations to increase investment in the bloc, indicating that the bloc’s economy will return to pre-crisis levels if governments work with the ECB to achieve reforms and stimulate growth. He also signaled that the ECB alone cannot foster economic growth on its own and that the structural, fiscal and monetary policies of each member countries should go together to see investment return in the region.
The Pound backpedalled as uncertainty surrounding Scotland continued to dominate market sentiment. Meanwhile, the Bank of England (BoE) Governor, Mark Carney in his testimony before the Treasury Select Committee gave indications that the central bank might raise its key interest rate next spring if the domestic labor market continues to show signs of improvement. However, the MPC member, David Miles, stated that he expects more slack in the nation’s labor market and sees less immediate need for a rise in interest rates.
The minutes of the Bank of Japan’s (BoJ) latest monetary policy held in August revealed that policymakers were optimistic about the nation’s economy recovery and expect inflation expectations to rise gradually. Minutes also indicated that the central bank would continue with its quantitative and qualitative monetary easing as long as necessary, in order to boost the nation’s economic activity and achieve its 2% inflation target.
Despite the release of better-than-expected employment data from Australia, the local currency fell sharply against the US Dollar, as upbeat US economic data underlined optimism over the strength of the economy, raising speculations that the Fed will begin to raise interest rates sooner than expected. The Aussie was also pressurized after China reported a more than expected drop in its consumer price inflation for August.
EUR USD
Last week, the EUR traded 0.09% higher against the USD and closed at 1.2963. The Euro began the week on a negative note against the greenback this morning, amid prospects that fighting in Eastern Ukraine might disturb the truce agreement between Russia and Ukraine. Additionally, the latest ECB monthly report reiterated that geopolitical tensions in Eastern Europe continued to weigh on the region’s economic growth. However, the common currency recouped its losses and finished higher as economic data from the region boosted demand for the Euro. Industrial output in the Eurozone recovered at a stronger than expected pace in July. Employment rose 0.2% in Q2, up from 0.1% recorded in the prior quarter. Data released earlier in the week indicated that the German trade surplus widened more than expected in July, while industrial production in France improved unexpectedly. On Friday, ratings agency, Standard and Poor's upgraded Greece's credit rating to “B”, reflecting the view that risks to fiscal consolidation in Greece have abated. During the week, the pair traded at a high of 1.2980 and a low of 1.2859. The pair is expected to find its first support at 1.2888, with the next support expected at 1.2813. The first resistance is at 1.3009, and the next at 1.3055.
Moving ahead, traders would keep a tab on trade balance, construction output and inflation data from the Eurozone. The ZEW economic sentiment survey in Germany and the Euro-zone would also remain crucial for the currency pair.
GBP USD
In the last week, GBP traded 0.36% lower against the USD and closed at 1.6268, amid rising uncertainty over Scottish independence following the recent mixed poll survey results. Moreover, the UK Prime Minister David Cameron, urged voters not to choose independence. However, losses were capped after the BoE Governor, Mark Carney signaled that the interest rate is set to rise by spring next year, as economic recovery has exceeded expectations and wage growth improves. Economic data released last week revealed that both industrial and manufacturing production improved in July, hinting that the nation’s strong recovery might extend into the third quarter. Additionally, a report by NIESR indicated that the UK economy expanded for the three months ended August. The pair traded at a high of 1.6279 and a low of 1.6052 in the previous week. GBPUSD is expected to find its first support at 1.6120, with the next at 1.5973. Resistance exists first at 1.6347, and then at 1.6427.
Ahead this week, traders would watch out for events unfolding the Scottish referendum. Additionally, minutes from the Bank of England’s latest policy meeting will gain significant market attention to ascertain views among members over the monetary policy stance going forward. Additionally, UK inflation and retail sales data will be keenly eyed for further direction to risk appetite.
USD JPY
The USD traded 2.14% higher against the JPY over the past week, closing at 107.34, as expectations that the US central bank is growing closer to raising interest rates continued to underpin investor demand for the greenback and as market participants reacted to positive US economic data. The Japanese Yen weakened following the release of soft Japanese economic data. The industrial activity report showed a drop in industrial production for the first time since August 2013, as weak domestic consumer spending climate and a drop in exports continued to haunt the nation’s economy. Japan's economy watchers' assessment of current conditions declined more than expected in August. The Conference Board’s leading index in Japan declined at a stable rate in July. The consumer confidence in Japan decreased unexpectedly in August. The Bank of Japan Governor, Haruhiko Kuroda, last week indicated that the current weakness in the Japanese Yen as favorable and stated that the economy is expected to recover for the third quarter. The pair traded at a high of 107.41 and a low of 104.99. The pair is expected to find its first support at 105.75, with the next support expected at 104.15. The first resistance is at 108.17, and the next at 109.00.
Ahead this week, Japanese trade data will be eyed to gauge the performance of exports for August. Additionally, coincident and leading economic index for July also remain key.
USD CHF
USD traded 0.23% higher against the CHF and closed at 0.9332 in the last week. In economic news, the annual consumer prices in Switzerland rose in August, after remaining flat in the previous two months, while retail sales for July declined. The consumer price index advanced 0.1% (YoY) following zero readings in June and July. On a monthly basis, consumer prices remained flat in August following declines in the previous two months. Real retail sales in Switzerland recorded an unexpected drop of 0.6% (YoY) in July, compared to a revised rise of 3.3% in the previous month. Market expectations were for real retail sales to climb 2.6%. The seasonally adjusted unemployment rate in Switzerland remained steady at a level of 3.2% in August and in line with market expectations. During the period, the pair traded at a high of 0.9397 and a low of 0.9309. The first support is at 0.9295, and the next at 0.9258. Resistance exists first at 0.9383, and then at 0.9434.
Moving forward, the Swiss trade data and the Swiss National Bank interest rate decision will be key for the Swiss Franc against the majors.
USD CAD
Last week, the USD traded 1.96% higher against the CAD and closed at 1.1093, amid speculation that the Fed policy makers could adopt more hawkish language at its policy meeting scheduled on September 17. Lack of major macroeconomic data from Canada also weighed on the Canadian Dollar. The Loonie began the week on a negative note as disappointing employment data released in Canada earlier in the month continued to weigh on the local currency. Canadian housing data were the only economic fundamentals released last week. On Monday, Statistics Canada reported that building permits in Canada beat market forecasts in July. Housing starts data released last Tuesday revealed that the nation's housing starts decelerated in August, falling to 192,400 from 199,800 units in July. Towards the end of the week another data revealed that the nation’s new housing price index remained flat, on a monthly basis in July, lower than market expectations for a 0.2% gain and following a similar increase registered in the previous month. USDCAD traded at a high of 1.1099 and a low of 1.0883 in the previous week. The first support is at 1.0951, with the next at 1.0809. The first resistance is at 1.1167, while the next is at 1.1241.
Ahead in the week, investors have their plate full with a raft of economic data scheduled for release, including the Canadian inflation data.
AUD USD
AUD traded 3.63% lower against the USD last week, and closed at 0.9038, on the back of a strong greenback and decline in commodity prices, while better-than-expected domestic jobs data failed to inspire investors. Meanwhile, the US Dollar recorded gains on rising speculations that the Fed will increase interest rates in mid-2015. The Australian employment reports made headlines on Thursday, as unemployment rate fell to a seasonally adjusted 6.1% in August and the employment change posted a sharp gain of 121,000, surpassing the estimate of 15,000 and marking the largest rise in at least three decades. Initially, the Aussie gained on the release, but then retracted sharply, as jobs reports revealed that a rise in the number of job additions were mainly due to an improvement in part time employment. Separately, the Melbourne Institute’s August report upgraded the 12-month inflation outlook in Australia. The Aussie also remained under pressure following the release of downbeat National Australia Bank’s business confidence survey for August and as the Westpac consumer confidence in Australia declined sharply in September. During the week, the pair traded at a high of 0.9376 and a low of 0.9030. The first support is at 0.8920, and the next at 0.8802. The first resistance is at 0.9266, and the next at 0.9494.
Going forward, investors would keep a close eye on the RBA’s minutes of the latest policy meeting.
Gold
In the prior week, Gold traded 2.82% lower against the USD and closed at USD1231.50, amid a broad strength in greenback following rising expectations that the Fed might increase its interest rates sooner than expected and as continuous flow of positive economic data from the US strengthened belief that the nation is gaining robust traction. The USD rose after latest batch of economic data released on Friday indicated that retail sales advanced 0.6% in August, following an upwardly revised 0.3% increase in July and the US consumer sentiment reported a bigger than expected reading of 84.6 in September, the best since July 2013. The yellow metal traded at a high of 1272.60 and a low of 1228.10 in the previous week. Gold is expected to find support at 1215.53 and the next at 1199.57. The first resistance is at 1260.03, while the next is at 1288.57.
Ahead this week, gold traders would focus on the outcome of Wednesday’s Fed policy meeting and the Fed Chair, Janet Yellen’s speech.
Crude Oil
Oil prices traded 1.09% lower against the USD in the last week and closed at USD92.27, amid ongoing concerns that global oil supply is plentiful while global demand remains tepid, offsetting concerns that conflicts in Ukraine and the Middle East may disrupt supply. Oil prices also came under pressure, after the International Energy Agency (IEA) indicated that the global appetite for crude oil fell at a remarkable pace in the second quarter, citing a weak economic growth in Europe and China and prompting the agency to revise down its demand forecasts for 2014 and 2015. Also, the Organization of the Petroleum Exporting Countries (OPEC) cut its 2015 forecast for oil prices on continued demand growth concerns. On the oil inventory front, the Energy Information Administration reported that the US crude oil inventories fell less than expected by 1.0 million barrels in the week ended September 5. However, the American Petroleum Institute indicated that the US crude oil inventories dropped more than expected by 1.9 million barrels. Oil traded at a high of 93.94 and a low of 90.43 in the previous week. Oil has its first major support at 90.49, while the next support exists at 88.70. The first resistance is at 94.00, and the next at 95.72.
The macroeconomic data from the US and the Fed policy meeting would remain a key catalyst in this week’s market action.
Happy pips.
