Weekly Forex Update
The greenback ended the week lower, after the Fed, in its latest monetary policy meeting, remained dovish and indicated that policymakers intended to keep interest rates unaltered at low levels for a significant period of time. It also expressed concern over the further strengthening of the greenback, as it could affect the US exports amid disappointing economic growth in the Euro-zone, slowdown in China and Japan, along with intensified geopolitical risks.
Meanwhile, the IMF remained upbeat over the US economy and upgraded the nation’s economic growth forecast to 2.2% in 2014. Separately, the St Louis Fed President, James Bullard indicated that there was a misinterpretation between the central bank’s thought process about the monetary policy and the view held by the market, regarding the Fed’s intentions on interest rates.
Last week in a noteworthy event, the IMF trimmed its global economic forecasts to 3.3% in 2014 and projected the world economy to expand 3.8% in 2015, lower than its earlier expectation of 4% growth, citing prolonged period of low inflation in the Euro-zone and further cautioning that the single-currency region might be inching towards another phase of recession.
The Pound remained higher at the end of the week, after the IMF forecasted that the Britain economy would outshine all other developed economies of the world as it is expected to chug along at 3.2% in 2014 and 2.7% in 2015. Meanwhile, during the week, the GBP came under pressure after the UK Business Secretary Vince Cable and IMF expressed concerns over the strength of the British Pound. Additionally, the UK Chancellor, George Osborne cautioned that the UK economy could also face consequences of the economic slowdown in the Euro-zone. Meanwhile, the BoE in a much expected move, maintained its interest rates at 0.5% and further indicated that the central bank would continue with its bond portfolio of £375 billion.
Downbeat economic releases from Germany, Euro-zone’s biggest economy kept the Euro in red against the greenback during the week. The single-region currency further came under pressure after the IMF predicted that the region would grow by less than 1% in 2014. Meanwhile, ECB Chief, Mario Draghi stated that the ECB was willing to take additional stimulus measures in order to boost inflation levels in the region from its ultralow levels.
EUR USD
Last week, the EUR traded 0.89% higher against the USD and closed at 1.2628, as the greenback was weighed down by the release of dovish Fed minutes. The Euro ended the week on a stronger footing against the greenback. However, gains in the Euro were limited after economic data from Germany as well as the Euro-zone continued to display signs of weakness in the region’s economy. Industrial output in Germany, registered its biggest monthly fall in August in more than 5-years, while factors orders dropped at its fastest rate since 2009. Additionally, the nation’s exports on a monthly basis tumbled to its lowest level since January 2009 in August, thereby raising recession fears over Europe’s biggest economy. Meanwhile, the Sentix consumer confidence in the Euro-zone eased for the third consecutive month in October, marking its lowest level since May 2013, thus adding to concerns about the economic health of the region. During the week, the pair traded at a high of 1.2792 and a low of 1.2512. The pair is expected to find its first support at 1.2496, with the next support expected at 1.2364. The first resistance is at 1.2776, and the next at 1.2924.
Looking ahead, investors await the Euro-zone’s as well as German ZEW’s survey for economic sentiment. Meanwhile, traders would keep a close eye on the Germany’s consumer prices data, followed by the ECB Chief, Mario Draghi’s speech scheduled during the week.
GBP USD
In the last week, GBP traded 0.64% higher against the USD and closed at 1.6076. The GBP witnessed its biggest gain during the week after the IMF stated that the UK economy would outpace all of G-7 nations this year. Separately, the BoE kept its key interest rates unchanged at 0.5% and maintained the size of its asset purchase facility at £375 billion, in line with market expectations. Meanwhile, during the week, the GBP came under pressure after the UK Business Secretary Vince Cable indicated that the British Pound was overvalued, echoing IMF and the BoE Deputy Governor Ben Broadbent’s earlier comments, who stated that the Sterling’s strength may have a long-lasting effect on inflation. Additionally, the UK Chancellor George Osborne statement that a slowdown in Euro zone would affect Britain’s economy further weighed down the GBP. In other economic news, data released indicated that Britain’s trade deficit narrowed more than expected, while construction output declined unexpectedly in August. Meanwhile, The NIESR survey released revealed a marginal slowdown in growth during the third quarter of 2014. The pair traded at a high of 1.6228 and a low of 1.596 in the previous week. GBPUSD is expected to find its first support at 1.5948, with the next at 1.582. Resistance exists first at 1.6216, and then at 1.6356.
In the week ahead, market participants would keep a tab on consumer inflation data, ILO unemployment and jobless claims data in the UK.
USD JPY
The USD traded 1.91% lower against the JPY over the past week, closing at 107.66, following the release of the Fed’s latest monetary policy meeting minutes. Meanwhile, the BoJ kept its interest rates unchanged at 0.1% and mentioned that the Japan’s economy continued to recover moderately, overcoming the effects of April sales tax hike. On the macro front, Japan’s leading economic index for August dropped to its lowest level since January 2013. Additionally, Japan’s economic watcher’s survey for future registered dismal readings, while the September consumer confidence data disappointed market participants. Separately, the IMF cuts its growth projections for Japan in 2014 and for 2015 as well. Over the weekend, the BoJ Governor, Haruhiko Kuroda, in the G-20 meeting, stated that the central bank would continue with its quantitative easing programme as the nation was still only half-way mark towards achieving its 2% inflation target. The pair traded at a high of 109.83 and a low of 107.53. The pair is expected to find its first support at 106.85, with the next support expected at 106.03. The first resistance is at 109.15, and the next at 110.64.
Going forward, investors look ahead to the BoJ’s outlook report as well as Japan’s industrial production data to get better insights of the country’s economy.
USD CHF
USD traded 1.07% lower against the CHF and closed at 0.9571 in the last week. In other economic news, consumer prices in Switzerland advanced less than expected on a monthly basis in September. Switzerland's unemployment rate remained steady at 3.2% on a monthly basis in September, at par with consensus estimates. Meanwhile, Swiss foreign currency reserves expanded more than expected in September. Separately, the SNB Vice-Chairman, Jean-Pierre Danthine emphasized that the central bank’s policy of maintaining cap on the Swiss Franc was essential for the right monetary conditions and stable prices in the nation. During the period, the pair traded at a high of 0.968 and a low of 0.9469. The first support is at 0.9467, and the next at 0.9362. Resistance exists first at 0.9678, and then at 0.9784.
Going forward, investors look forward to ZEW’s economic expectations as well as SECO’s economic forecasts for October, scheduled this week.
USD CAD
Last week, the USD traded 0.4% lower against the CAD and closed at 1.1199, after Canada’s Ivey PMI registered an upbeat reading, marking its highest level since October 2013. Meanwhile, the nation’s building permits eased more than expected on a monthly basis in August, while housing starts climbed less than market projections in September. Separately, the IMF raised Canada’s economic growth projections to 2.3% this year and held its 2015 estimate at 2.4%. The fund further stated that the BoC’s present accommodative policy is “appropriate”, as slack in the economy along with downside risks to the outlook still exists in the nation. USDCAD traded at a high of 1.1263 and a low of 1.1078 in the previous week. The first support is at 1.1097, with the next at 1.0995. The first resistance is at 1.1282, while the next is at 1.1365.
Looking forward, Canada’s consumer price index data would keep the investors on their toes.
AUD USD
AUD traded 0.13% higher against the USD last week, and closed at 0.8686. The AUD started the week on a higher footing after a report revealed job advertisements in Australia increased for a fourth consecutive month last month. However, the AUD later came under pressure after the RBA in its monthly policy meeting cautioned that “over-valued” Aussie as well as the country’s housing market were hampering the nation’s economic growth. Meanwhile, the RBA kept its interest rates unchanged at 2.5%, for the 14th consecutive month. Other data showed that the nation’s unemployment rate came in line with market expectations. Separately, the IMF cautioned that unemployment rate in Australia would continue to remain above 6.0% over the next two years. Meanwhile, it expects Australia to grow by 2.8% in 2014 and 2.9% in 2015. During the week, the pair traded at a high of 0.8900 and a low of 0.8662. The first support is at 0.8599, and the next at 0.8511. The first resistance is at 0.8837, and the next at 0.8987.
In the week ahead, market participants await the NAB’s business confidence, consumer inflation expectation data, for further cues.
Gold
In the prior week, Gold traded 2.41% higher against the USD and closed at USD1221.7, as a decline in greenback along with a slump in global equity markets enhanced the safe haven appeal of the yellow metal. Gold prices touched a two-week high during the week, after the Federal Reserve’s minutes of its latest monetary policy meeting eased expectations of an early US interest rates hike and after the IMF reported a bleak outlook of the global economy, with downward revisions to the economic forecasts from its earlier report. Meanwhile, holdings in the SPDR Gold Trust on Friday declined 2.64 tonnes to 759.44 tonnes, its lowest level since December 2008. The yellow metal traded at a high of 1234 and a low of 1183.4 in the previous week. Gold is expected to find support at 1192.07 and the next at 1162.43. The first resistance is at 1242.67, while the next is at 1263.63.
In the week ahead, trading trends in the yellow metal would be determined by the release of retail sales data from the US and inflation data from China. Meanwhile, the demand for gold would be stirred by the ongoing festive season in India, the second largest consumer of gold which would also affect prices of the metal.
Crude Oil
Oil prices traded 4.37% lower against the USD in the last week and closed at USD85.82. Oil prices plunged below its crucial $90 per barrel for the first time in two years, amid concerns over weakening global demand and oversupply from the US because of increasing shale oil production. Crude prices weakened after IMF highlighted Europe’s near recession scenario, lower expectations for oil consumption in China and after report revealed that production of crude oil in the US has jumped by over 3 million barrels per day in the last two years. Moreover, the EIA and the API both reported a rise in the US oil stockpiles data for the week ended 3 October 2014. Meanwhile, the OPEC in its monthly report last week kept its world oil demand growth forecasts unchanged for 2014 and 2015, while top oil exporter Saudi Arabia revealed that it has increased its oil production in September by 100,000 barrels per day, thereby indicating that it has yet to respond to a drop in prices by trimming output. Similarly, Iran’s oil Minister Bijan Zanganeh hinted earlier during the week that there would be no emergency cut in production from the Middle East’s largest producers before the end of November. Oil traded at a high of 90.74 and a low of 83.59 in the previous week.
Oil has its first major support at 82.69, while the next support exists at 79.57. The first resistance is at 89.84, and the next at 93.87.
Happy pips.
