Weekly Forex Update
The greenback ended the week lower, following the release of downbeat US monthly retail sales data in September and retreating expectations of an early interest rate hike from the Fed. However, the greenback pared its losses after the US reported stronger than expected initial jobless claims data, industrial production as well as consumer sentiment data.
Initial unemployment benefits in the US unexpectedly fell to 14-year low level, underlining improvement in the US labor market, while industrial production rebounded strongly on a monthly basis in September. Additionally, consumer sentiment in the nation climbed to its highest level in 7 years in October. In other economic data, the Fed’s Beige book report indicated that the US economy would continue to grow at a modest-to- moderate pace, while all the twelve Fed districts showed expansion in their economic activity for the second consecutive month. Separately, St Louis Fed President, James Bullard, citing a recent decline in the US inflation expectations, urged the Fed to persist with its asset purchase program for some more time. Later in the week, Fed Chairwoman, Janet Yellen expressed concerns about growing economic inequality in the US, which she flagged as a risk to the nation’s economic growth.
The Euro ended the week higher against the USD, after ECB’s Benoit Coeure highlighted ECB’s belief that the Euro-zone economy would expand in the third and final quarters of 2014. During the week, the Euro came under pressure after the German ZEW survey of economic sentiment indicated worse than expected reading in October, while the Euro-zone’s economic sentiment figure also disappointed the market expectations. Additionally, the region’s dismal monthly industrial production data further weighed on the single region’s currency. Meanwhile, Germany’s as well as the Euro-zone’s inflation data came in line with market expectations on a monthly basis in September.
The Pound remained higher against the USD at the end of the week, after the UK’s unemployment rate surprisingly fell to its lowest level since 2008. However, earlier during the week, the Pound registered huge losses following dismal monthly consumer prices data from the UK in September. Separately, the BoE’s policymaker, Andrew Haldane cautioned that interest rates in the UK need to remain lower for some more time, citing fears over health of the world economy and escalating geopolitical worries across the globe.
EUR USD
Last week, the EUR traded 1.05% higher against the USD and closed at 1.2761. However, during the week, the Euro traded on a lower footing after economic data from Germany as well as the Euro-zone continued to display signs of weakness in the region’s economy. Germany’s ZEW indicator of economic sentiment deteriorated for the 10th successive month in October and registered a negative reading for the first time in nearly two years. In other economic news, the Euro-zone’s trade balance showed expansion in August, while annual consumer prices in the Euro-zone as well as in Germany, came in line with market forecasts in September. During the week, Germany’s Economy Minister, Sigmar Gabriel downgraded the nation’s growth forecasts for 2014, citing weaker global economic growth and heightened geopolitical tensions. Separately, the ECB Governing Council Member, Ewald Nowotny opined that the Euro-zone’s economic growth outlook for 2015 could be trimmed from its current 1.6% level, due to slowdown in global economic growth. During the week, the pair traded at a high of 1.2887 and a low of 1.2625. The pair is expected to find its first support at 1.2628, with the next support expected at 1.2496. The first resistance is at 1.2890, and the next at 1.3020.
Looking ahead, investors await the Markit services and manufacturing PMI data from the Euro-zone as well as Germany, Europe’s biggest growth engine.
GBP USD
In the last week, GBP traded 0.11% higher against the USD and closed at 1.6093, after the UK’s ILO unemployment rate dropped more than expected for the three months ended August, registering its lowest level in 6 years, while growth in wage earnings including bonus rose on an annual basis in the June-August period, in line with market expectations. Meanwhile gains in the British Pound were limited, following the BoE’s Governor, Mark Carney’s dovish comments that weakness in the Euro-economy would have a significant effect on the central bank’s decision to raise its key rates at its next monetary policy meeting. Additionally, the GBP fell to an 11-month low after September consumer prices in the nation on a yearly basis registered its lowest rate since October 2009. Separately, the BoE’s MPC Member, Martin Weale mentioned that he will continue to press for an immediate hike in the interest rate and urged the central bank not to consider the recent slid in the nation’s inflation level while setting the interest rate policy. The pair traded at a high of 1.6128 and a low of 1.5874 in the previous week. GBPUSD is expected to find its first support at 1.5935, with the next at 1.5778. Resistance exists first at 1.6189, and then at 1.6286.
In the week ahead, market participants would keep a close eye on the UK’s GDP data as well the BoE’s take on its interest rate decision.
USD JPY
The USD traded 0.72% lower against the JPY over the past week, closing at 106.88, following disappointing advance retail sales data from the US in September. The Japanese currency gained ground amid safe haven demand and after Japan’s Economics Minister, Akira Amari mentioned that the Japanese government was not deliberately trying to weaken the Yen and that any negative consequences from increasing import prices in the nation should be strictly monitored. However, the BoJ Governor, Harihuko Kuroda, stated that a weakening in Yen is beneficial for the nation’s economy as it would help in bolstering the nation’s exports. In other economic news, monthly industrial production in Japan for August dropped more than the previous month’s fall. Meanwhile, Japan’s machine tool orders continue to rise on an annual basis in September. The pair traded at a high of 107.59 and a low of 105.20. The pair is expected to find its first support at 105.52, with the next support expected at 104.16. The first resistance is at 107.91, and the next at 108.95.
Going forward, investors look ahead to Japan’s leading economic, coincident and all industry activity indices data, as well as JMMA manufacturing PMI data to get better insights of the country’s economy.
USD CHF
USD traded 1.13% lower against the CHF and closed at 0.9463 in the last week. During the week the Swiss Franc came under pressure after Switzerland’s SECO lowered the nation’s economic growth forecast for 2014 to 1.8% from its previous growth of 2.0% and 2015 growth forecast to 2.4% from 2.6%, citing dismal economic outlook of the Euro-zone. It further lost ground after the nation’s ZEW economic expectations index revealed deterioration in October. In other economic news, the SNB indicated that real estate index for single family homes advanced in 3Q 2014, while producer and import prices registered a drop on a monthly basis in September. During the period, the pair traded at a high of 0.9569 and a low of 0.9360. The first support is at 0.9359, and the next at 0.9255. Resistance exists first at 0.9568, and then at 0.9673.
Going forward, amid a quiet week in terms of economic releases from Switzerland, investors look ahead to Swiss trade balance data.
USD CAD
Last week, the USD traded 0.7% higher against the CAD and closed at 1.1277, following impressive initial jobless claims and industrial production data from the US. The CAD continued to remain under pressure, reaching its lowest level since July 2009, after oil prices plunged with Canada being one of the world’s biggest oil exporters. However, the Loonie recovered some of its losses after the consumer price index in Canada came in line with the BoC’s market expectations on a monthly basis in September. Meanwhile, Canada’s existing home sales eased on a monthly basis in September. Separately, a private survey revealed that Canada’s house owners were taking advantage of record-low interest rates in the nation and paying down their mortgages at a faster than expected pace. USDCAD traded at a high of 1.1387 and a low of 1.1182 in the previous week. The first support is at 1.1177, with the next at 1.1077. The first resistance is at 1.1382, while the next is at 1.1487.
Looking forward, investor sentiments would depend upon the BoC’s interest rate decision, monetary policy report as well as Canada’s retail data.
AUD USD
AUD traded 0.67% higher against the USD last week, and closed at 0.8744, as investors ignored RBA Assistant Governor, Guy Debelle ‘s statement wherein he expressed concerns over the “elevated” value of the Aussie. Meanwhile, the AUD continued to weaken throughout the week on the back of declining metal prices and investor concern about the Chinese economy. The Australian Dollar further lost ground after the business confidence index in Australia fell to a 12-month low reading in September, while consumer inflation expectation registered a drop compared to previous month’s level. Elsewhere, in China, Australia’s biggest trading partner, inflation slowed more than anticipated on an annual basis in September, marking 5-year low level, thus adding to growth concerns in the world’s second biggest economy. During the week, the pair traded at a high of 0.8862 and a low of 0.8652. The first support is at 0.8643, and the next at 0.8543. The first resistance is at 0.8853, and the next at 0.8963.
In the week ahead, market participants await the RBA minutes from its last monetary policy meeting held, Australia’s Q3 CPI data along with the RBA Governor, Glenn Stevens speech. Meanwhile, China’s GDP data would keep investors on their toes.
Gold
In the prior week, Gold traded 1.42% higher against the USD and closed at USD1239.00, as global equity markets registered losses on the back of global growth concerns. Additionally, subdued data from the US further strengthened the case for the Federal Reserve to keep its interest rates lower for some more time. Gold prices received support during the week after Fed’s James Bullard urged the central bank to keep buying bonds for a longer period, amid volatile markets and declining inflation expectations. The SPDR Gold Trust reported that holdings in the world's largest gold-backed exchange-traded fund advanced 0.2% to 760.94 tonnes. The yellow metal traded at a high of 1250.30 and a low of 1222.00 in the previous week. Gold is expected to find support at 1223.90 and the next at 1208.80. The first resistance is at 1252.20, while the next is at 1265.40.
In the week ahead, the prices of the yellow metal would be affected by the release of inflation numbers from the US. Meanwhile, the various manufacturing activity data from the US would also give a fair idea of the economic outlook of the world’s largest economy.
Crude Oil
Oil prices traded 3.58% lower against the USD in the last week and closed at USD82.75. Oil prices continued their steep decline below the key $90 per barrel for the second consecutive week as the global glut continued on record production. Oil prices tumbled to its lowest level since 2010 during the start of the week after the IEA slashed its projections for demand growth this year for the fourth month in a row. Additionally, oil prices weakened further after Middle East producers stated that it would not cut its production as it was keen on maintaining its market share, even if it meant declining prices. Meanwhile, the EIA reported that the US crude oil inventories rose by 8.9 million barrels to 370.6 million barrels in the week ended October 10 and the API indicated that the US crude oil inventories rose by 10 million barrels to 370.7 million barrels.
Oil traded at a high of 85.87 and a low of 79.78 in the previous week. Oil has its first major support at 79.73, while the next support exists at 76.71. The first resistance is at 85.82, and the next at 88.89.
Happy trading.
