Last week, the European Central Bank (ECB) held benchmark interest rate steady at 0.05%, in-line with market expectations. At the press conference that followed, the ECB President, Mario Draghi, indicated that the fading growth and inflation prospects might force the bank to review its policy stance, a strong signal that more easing could be introduced at its next meeting in March.
Macroeconomic data released during the week showed that the final estimate of Eurozone’s consumer price index advanced by 0.2%, in line with market expectations on an annual basis in December. On the other hand, the ZEW economic sentiment index dropped to a 14-month low, and the preliminary Markit manufacturing PMI weakened to reach a 11-month low level in January. Meanwhile in Germany, the final consumer price inflation fell 0.1%, meeting investor expectations, on a monthly basis in December, while the flash manufacturing PMI fell more-than-anticipated to a 3-month low level in January. Moreover, the nation’s investor sentiment deteriorated at the start of the year, as slower growth in China and other emerging markets weakened the outlook for Eurozone’s largest economy.
The greenback ended mixed last week. On the data front, the US consumer prices unexpectedly declined on a monthly basis in December, as an unabated plunge in crude oil prices kept inflation under wraps, thus diminishing expectations for a Federal Reserve’s (Fed) interest rate hike in March. Moreover, housing starts and building permits fell in December after hefty gains in the previous month, dampening optimism over the health of the nation’s housing sector. Additionally, the initial jobless claims unexpectedly increased to a six-month high level for the week ended 16 January 2016. On the other hand, the flash Markit manufacturing PMI surprisingly rebounded in January.
The British Pound ended the week in the green. Data released in UK revealed that the consumer price index rose in line with market expectations to reach a 11-month high level on an annual basis in December. Additionally, the nation’s ILO unemployment rate unexpectedly fell to 5.1% for the three months ended in November, notching its lowest level since early 2006, while wage growth remained subdued during the period. Further, UK’s retail sales contracted more-than-expected on a monthly basis in December.
Meanwhile in China, Q4 GDP expanded by 6.8%, matching market expectations, but at the slowest pace since 1990, putting pressure on the nation’s policymakers to roll out more support measures.
Separately, the IMF downgraded its global growth projections to 3.4% in 2016 and 3.6% in 2017, from its earlier October forecast of 3.6% and 3.8%, respectively, citing a slowdown in emerging economies such as China.
EURUSD
Last week, the EUR traded 1.11% lower against the USD and closed at 1.0797. Last week, the ECB kept key interest rate unchanged at 0.05%. The ECB President, Mario Draghi, warned that the downside risks to the Eurozone economy had increased at the start of the year and hinted at further easing in March. In other economic news, the final estimate of the Eurozone’s consumer price inflation rose by 0.2%, in line with market expectations, on an annual basis in December. On the other hand, the Eurozone’s ZEW economic sentiment index dropped to a 14-month low and the preliminary consumer confidence index fell surprisingly in January. Meanwhile in Germany, the final consumer price index declined 0.1%, in line with market expectations, on a monthly basis in December. The EUR hit a high of 1.0977 and a low of 1.0778 against the USD in the previous week. The pair is expected to find support at 1.0724, and a fall through could take it to the next support level of 1.0651. The pair is expected to find its first resistance at 1.0923, and a rise through could take it to the next resistance level of 1.1050. This week, investors would focus on the Eurozone and German consumer price inflation and consumer confidence index to gauge the strength in the European economy. Additionally, the Eurozone industrial confidence data would also be keenly watched by investors.
GBPUSD
The GBP traded 0.18% higher against the USD last week, with the pair closing at 1.4278. In macroeconomics news, UK’s consumer price inflation advanced in line with market expectations on an annual basis in December. Further, the nation’s ILO unemployment rate surprisingly fell to 5.1% for the three months to November, its lowest level since early 2006. On the other hand, the nation’s retail sales declined more-than-expected on a monthly basis in December. Separately, the BoE Governor, Mark Carney, stated that it is not yet the time to increase the benchmark interest rate from a record low of 0.5%. He further stated that the inflation is expected to rise more gradually and the path towards monetary policy normalization appears too far because of the oil price collapse and volatility in China. The GBP hit a high of 1.4364 and a low of 1.4081 against the USD in the previous week. Immediate downside, the first support level is seen at 1.4118, followed by 1.3958, while on the upside, the first resistance level situated in 1.4401, followed by 1.4524. Moving ahead, market participants look forward to the release of UK’s preliminary Q4 GDP data this week. Meanwhile, Britain’s Gfk consumer confidence, BBA mortgage approvals and nationwide house price index would also generate a lot of market attention.
USDJPY
Last week, the USD traded 1.62% higher against the JPY and closed at 118.85. On the macroeconomic front, Japan’s preliminary Nikkei manufacturing PMI surprisingly declined in January. Moreover, the industrial production in the country unexpectedly dropped, while the all industry activity index fell more-than-expected on a monthly basis in November. Meanwhile, the International Monetary Fund (IMF) indicated that Japan’s economy is likely to expand by 1.0% in 2016, unchanged from its earlier projection, citing support for the economy from the government and the Bank of Japan (BoJ). Moreover, the nation is expected to grow by 0.3% in 2017, down 0.1 point from its earlier estimate. During the previous week, the pair traded at a high of 118.88 and a low of 115.97. The pair is expected to find support at 116.91, and a fall through could take it to the next support level of 114.98. The pair is expected to find its first resistance at 119.82, and a rise through could take it to the next resistance level of 120.80. Looking ahead, investors anxiously await the outcome of BoJ’s interest rate decision, scheduled to be announced this week. In addition to this, Japan’s national consumer price index, industrial production, unemployment rate and construction orders data, will also garner investor interest.
USDCHF
The USD rose against the CHF last week, closing 1.4% higher at 1.0161. In economic news, Switzerland’s ZEW survey of economic expectations index plunged in January to register its weakest reading since July 2015. Also, the nation’s producer and import price index fell more-than-expected for the first time in three months on a monthly basis in December. The USD hit a high of 1.0166 and a low of 0.9991 against the CHF in the previous week. The pair is expected to find its first support at 1.0046 and first resistance at 1.0221. The second support is expected at 0.9930 and second resistance at 1.0281. Going forward, investors this week would closely monitor Switzerland’s trade balance, UBS consumption and KOF leading indicator data for further cues in the Swiss Franc.
USDCAD
The USD fell against the CAD last week, closing 2.62% lower at 1.4149. Last week, the Bank of Canada (BoC) held its benchmark interest rate steady at 0.5%. In its latest monetary policy report, the central bank projected that Canada’s economy will grow by about 1.5% in 2016 and 2.5% in 2017. In other economic news, retail sales in Canada advanced above market expectations on a monthly basis in November. In contrast, the nation’s consumer price inflation declined more-than-expected on a monthly basis in December. Meanwhile, the International Monetary Fund (IMF) downgraded its 2017 GDP growth outlook for the Canadian economy to 2.1%, down from its previous October estimate of 2.4%, citing the ongoing challenges from China’s slowing growth and plummeting oil prices. The IMF left the nation’s growth projection for 2016 unchanged at 1.7%. During the previous week, the pair traded at a high of 1.4692 and a low of 1.4114. The pair is expected to find support at 1.3944, and a fall through could take it to the next support level of 1.3740. The pair is expected to find its first resistance at 1.4523, and a rise through could take it to the next resistance level of 1.4897. Moving ahead, market participants would concentrate on Canada’s GDP data for further direction in the CAD.
AUDUSD
The AUD strengthened against the USD last week, closing 2.14% higher at 0.7007. In economic news, Australia’s Westpac consumer confidence index fell further in January, taking the index back to levels last seen in September 2015, amid renewed concerns over the outlook for China’s economy. Further, in another ominous sign for the nation’s property market, new home sales declined for the third consecutive month in November. Moreover, consumer inflation expectations dropped in January. The AUD hit a high of 0.7048 and a low of 0.6828 against the USD in the previous week. The pair is expected to witness its first support at 0.6874 and second support at 0.6741, while the first resistance is expected at 0.7094 and second resistance at 0.7181. Moving ahead, along with the release of Australia’s Q4 consumer price inflation data, market participants would also keep a close eye on the nation’s Westpac leading index and business confidence data this week.
Gold
During the previous week, gold traded 0.83% higher and ended at USD1097.95 per ounce, as weak US inflation dampened expectations of an interest rate hike by the Fed in March. The yellow metal witnessed a high of USD1109.90 per ounce and a low of USD1082.10 per ounce in the previous week. Immediate downside, the first support level is seen at USD1083.37 per ounce, followed by USD1068.83 per ounce, while on the upside, the first resistance level situated in USD1111.17 per ounce, followed by USD1124.43 per ounce.
Crude Oil
Crude oil strengthened in the previous week, closing 9.42% higher at USD32.19 per barrel, as the prospect of additional ECB stimulus and sub-zero temperatures across the United States and Europe boosted fuel demand. Separately, the Energy Information Administration (EIA) in its weekly report indicated that the US crude stockpiles rose by 4.0 million barrels, while the American Petroleum Institute (API) reported that the US oil inventories rose by 4.6 million barrels to 485.2 million barrels during the week ended 15 January 2016. Crude oil witnessed a high of USD32.35 per barrel and a low of USD27.56 per barrel last week. Crude oil is expected to its find support at USD29.08 per barrel, and a fall through could take it to the next support level of USD25.93 per barrel. The commodity is expected to find its first resistance at USD33.87 per barrel, and a rise through could take it to the next resistance level of USD35.51 per barrel.
Good trades.
