Weekly Forex Update
The greenback rose against its key peers last week, as economic data from the US raised expectations that the Federal Reserve (Fed) will raise interest rates sooner than expected. Additionally, the Dallas Fed President, Richard Fisher stated that the US central bank may start raising interest rates around the spring of 2015, earlier than many market expectations.
The US Dollar extended its rally, after the Thomson Reuters/Michigan reports released on Friday confirmed a notable improvement in the US consumer sentiment index in September, in line with preliminary estimates. Additionally, another data showed that the US economy grew at its fastest pace in two-and-a-half years in the second quarter of 2014.
Meanwhile, the Euro slipped against the USD, after the European Central Bank (ECB) President, Mario Draghi reiterated bank's commitment to act with more policy measures to boost inflation in the Eurozone. Also, disappointing economic data from the Eurozone and its member nations weighed on the common currency.
The Pound backpedalled versus greenback, following a soft economic data released in the UK last week. However, losses were limited as hawkish comments from the Bank of England (BoE) Governor gave the GBP some support. The BoE chief, Mark Carney indicated that the timing of raising interest rates is “getting closer” but stressed that decision to tighten policy will depend on data and added the BoE does not have a pre-set course.
The Yen came under pressure, after data revealed that the consumer price index in Japan slowed more than expected in August, highlighting a setback to the Bank of Japan's (BoJ) efforts to achieve its 2% price target. Speculations increased that the BoJ might infuse more stimulus measures at its next policy meeting, as the data added to a series of disappointing economic indicators suggesting that Prime Minister Shinzo Abe's economic revival plan has hit a major stumbling block after a sales tax hike in April took the much of the steam out of a recovery driven by consumption.
The Loonie, the Aussie and the Kiwi Dollar also weakened against its US counterpart, as lingering concerns over the outlook for monetary policy curbed the demand for riskier assets. Moreover, risk sentiment further dampened, amid rising geopolitical concerns due to the ongoing conflict in Syria and reports that Russia is considering a law that would allow their courts to seize foreign assets in response to Western sanctions.
EUR USD
Last week, the EUR traded 1.13% lower against the USD and closed at 1.2684, after the ECB chief pledged to keep monetary policy “accommodative” for as long as needed, and to use every tool at the central bank’s disposal to fight deflation. Additionally, the ECB Governing Council member, Ignazio Visco, indicated earlier in the week that the Eurozone might struggle to recover from the economic crisis. The common currency also lost ground following the release of dismal German Ifo sentiment report that showed the business climate in Europe’s largest economy remained weak, amid persistent geopolitical tensions in Ukraine. Also, most of the preliminary manufacturing and services PMI readings for September across key European nations were weaker than expected. During the week, the pair traded at a high of 1.2902 and a low of 1.2677. The pair is expected to find its first support at 1.2607, with the next support expected at 1.2529. The first resistance is at 1.2832, and the next at 1.2979.
Ahead this week, the EUR traders will keep an eye on Eurozone’s crucial inflation numbers and the second quarter GDP data for further direction to risk appetite. Moreover, the ECB’s policy meeting will also be the key event for the common currency.
GBP USD
In the last week, GBP traded 0.23% lower against the USD and closed at 1.6250, following the release of disappointing domestic economic data. Economic data indicated that the numbers of mortgage approvals in the UK declined unexpectedly in August. Additionally, another report showed that the public sector borrowed more than expected, as lower tax collection and an increase in government spending weighed on the central bank’s finances. Data released by Hometrack indicated that the growth in UK house prices stalled for the first time in 18 months for September. However, losses were capped after the BoE Governor, Mark Carney, stated that the central bank is “moving closer” to raise its benchmark interest rate. However, he reiterated that the exact timing of rate hike will depend upon the economic data. He further indicated that the interest rate rise would be limited and gradual. The pair traded at a high of 1.6417 and a low of 1.6238 in the previous week. GBPUSD is expected to find its first support at 1.6186, with the next at 1.6123. Resistance exists first at 1.6365, and then at 1.6481.
A spate of decisive UK macro data this week, including economic growth data and PMI reports, will keep investors on their toes.
USD JPY
The USD traded 0.23% higher against the JPY over the past week, closing at 109.29, after data revealed that the US economy grew at a healthy pace in the second quarter, fuelling expectations that interest rate rise will come sooner than later in 2015. The Yen came under pressure after data showed that Japan’s consumer prices rose at a slower pace in August, raising speculations that the central bank could eventually have to take additional steps to meet its target of a 2% inflation rate next year. A separate data revealed that the manufacturing sector in Japan continued to grow in September, albeit at a slower pace, with a PMI reading of 51.7, down from 52.2 in August. The pair traded at a high of 109.55 and a low of 108.25. The pair is expected to find its first support at 108.51, with the next support expected at 107.73. The first resistance is at 109.81, and the next at 110.33.
Going forward, the Japanese unemployment rate, industrial production and retail trade data for August will attract considerable market attention.
USD CHF
USD traded 1.13% higher against the CHF and closed at 0.9514 in the last week, after strong US economic data bolstered the case for higher interest rates. In the Swiss economic news, the UBS consumption indicator declined to a reading of 1.35 in August, compared to a revised reading of 1.67 reported in the prior month. The Swiss National Bank reported that Swiss M3 money supply climbed 3.4% on a YoY basis in August, following a revised rise of 3.6% registered in the previous month. During the period, the pair traded at a high of 0.9522 and a low of 0.9353. The first support is at 0.9404, and the next at 0.9294. Resistance exists first at 0.9573, and then at 0.9632.
The KOF leading indicator and the SVME manufacturing PMI data from Switzerland would be the key event for the local currency.
USD CAD
Last week, the USD traded 1.74% higher against the CAD and closed at 1.1154, following a robust set of US economic data. The data included US GDP print that revealed that the world's largest economy accelerated during the second-period, leading investors to believe that the Fed may start raising interest rates sooner than expected. The Loonie began the week on a negative note, following dovish comments from the Bank of Canada (BoC) Governor, Stephen Poloz. He indicated that the recent acceleration in inflation was due to some seasonal factors and that there is a considerable slack in the economy due to which the key interest rate should remain low for a considerable period. In economic news, the Canadian retail sales declined unexpectedly in July, falling 0.1% following six consecutive monthly increases. USDCAD traded at a high of 1.1170 and a low of 1.0926 in the previous week. The first support is at 1.0997, with the next at 1.0839. The first resistance is at 1.1241, while the next is at 1.1327.
Market participants would focus on the Canadian manufacturing, trade and GDP data ahead in the week.
AUD USD
AUD traded 1.79% lower against the USD last week, and closed at 0.8765, following comments from the Reserve Bank of Australia’s (RBA) Governor, Glenn Stevens that pulled the domestic currency down. The RBA Governor indicated that the central bank would introduce tools to control the nation’s housing market from overheating after the RBA’s financial stability report showed that the nation’s housing market was posing a major challenge to the economy. The report revealed that low interest rates and surging house prices had led to a rise in lending to property investors, creating an imbalance. It further cautioned that risks to financial institutions would rise if lending growth increased at higher rates. During the week, the pair traded at a high of 0.8951 and a low of 0.8748. The first support is at 0.8692, and the next at 0.8618. The first resistance is at 0.8895, and the next at 0.9024.
Ahead in the week, investors have their plate full with a raft of economic data scheduled for release, including the Australian manufacturing, retail sales, housing and trade data.
Gold
In the prior week, Gold traded 0.10% lower against the USD and closed at USD1215.40, as the yellow metal continue to lose its appeal, with upbeat US data offering more clues over the strengthening of nation’s economy. The precious metal rebounded on Tuesday as the launch of air strikes in Syria boosted metal’s safe haven appeal. Moreover, report from the International Monetary Fund revealed that Ukraine, Russia and Turkey boosted its gold reserves in August on political uncertainty. Gold came under pressure on Friday, as the US Dollar strengthened on upbeat GDP and in line consumer sentiment data in the US. The yellow metal traded at a high of 1237.00 and a low of 1206.60 in the previous week. Gold is expected to find support at 1202.33 and the next at 1189.27. The first resistance is at 1232.73, while the next is at 1250.07.
Ahead this week, traders will look forward to Friday’s US nonfarm payrolls report for further indications on the strength of the economic recovery.
Crude Oil
Oil prices traded 1.22% higher against the USD in the last week and closed at USD93.54, as better than expected US economic data boosted expectations that accelerating economic growth would support oil demand. Oil prices also received support on concerns that the US-led airstrikes targeting ISIS insurgents in the Middle East would disrupt oil exports, pushing prices northwards. Oil prices also received support from falling crude oil inventories in the US. The Energy Information Administration reported the US oil inventories fell by 4.27 million barrels in the week ending September 19, compared to a rise of 3.67 million barrels in the previous week. Also, the American Petroleum Institute stated that US crude inventories declined by 6.5 million barrels to 355.9 million barrels in the similar week. Oil traded at a high of 93.86 and a low of 90.58 in the previous week. Oil has its first major support at 91.46, while the next support exists at 89.38. The first resistance is at 94.74, and the next at 95.94.
In the week ahead, oil traders will focus on the US non-farm payrolls, unemployment rate, ISM manufacturing and consumer confidence data.
Happy trades.
