The highlight of the week was the Bank of England (BoE) and the Reserve Bank of Australia’s (RBA) interest rate decision and mixed US jobs data in January. Both the central banks held benchmark interest rate steady at its current levels but expressed concerns about low domestic inflation, heightened volatility in financial markets and the slowdown in China. Further, the respective banks also warned that there exists a further scope for easing, if economic recovery falters.
The BoE kept interest rate unchanged at 0.5% and made no changes to its £375.0 billion asset purchase program, in line with market expectations. Additionally, the central bank, in its quarterly inflation report cut UK’s growth forecast to 2.2% in 2016 and 2.3% in 2017, down from its earlier forecast of 2.5% and 2.6% respectively. In other economic news, Britain’s seasonally adjusted Markit manufacturing PMI improved more than expected to a 3-month high level, while the nation’s dominant service sector registered a further solid rate of expansion in January. In contrast, a similar gauge of the nation’s construction industry declined more-than-anticipated to a 9-month low level during the same month, with heightened economic uncertainty acting as a brake on new orders.
The RBA held key interest rate steady at 2.0% in a widely expected move. The RBA, in its monetary policy statement projected the Australian economy to grow at an average rate of 2.5% in 2016 and 3.0% in 2017 and also forecasted a continued fall in unemployment.
The greenback ended the week in the red, after the US non-farm payrolls increased less than expected in January, sharply diminishing expectations of further Fed rate hikes this year. On the other hand, unemployment rate surprisingly fell to an eight-year low level, indicating that the labor market recovery remains firm. The US ISM manufacturing PMI contracted for the fourth straight month, whereas activity in the nation’s services sector slowed to a near two-year low in January. Separately, the New York Fed President, William Dudley hinted that tighter financial conditions could prompt the central bank to delay its next interest-rate hike.
The Euro ended the week on a strong footing, after the ECB President, Mario Draghi, assured investors that the central bank will not surrender to low inflation and will introduce additional stimulus measures, if needed. On the macroeconomic front, Euro-zone’s unemployment rate unexpectedly declined to a four-year low level in December.
Meanwhile, China had a bumpy start to the New Year as the NBS manufacturing PMI slipped to a three-year low level in January, raising further concerns about the health of the world’s second largest economy.
EURUSD
The EUR strengthened against the USD last week, closing 2.95% higher at 1.1153, after the ECB President, Mario Draghi, indicated that the central bank will not give up its fight against low inflation, reinforcing the case for additional stimulus package next month. Separately, the European Commission trimmed its Euro-zone 2016 growth forecast to 1.7% from the earlier 1.8%, citing that a slowdown in emerging economies is posing a major threat to the region’s economic recovery. In other macroeconomic news, Euro-zone’s final Markit manufacturing PMI remained steady in January, in line with market expectations. Moreover, retail sales rebounded for the first time in 4 months on a monthly basis in December, in line with investor expectations, providing a positive view about the current domestic environment in the Eurozone. Meanwhile in Germany, the seasonally adjusted unemployment rate unexpectedly dropped to a historic low of 6.2% in January, indicating that recovery in the Eurozone’s biggest economy remains on track. The pair traded at a high of 1.1247 and a low of 1.0824 during the previous week. The pair is expected to witness its first support at 1.0903 and second support at 1.0652, while the first resistance is expected at 1.1325 and second resistance at 1.1498. This week, investors would focus on the preliminary Q4 GDP and industrial production data across the Eurozone to gauge the strength in the European economy. Additionally, Germany’s trade balance and consumer price inflation data would also be keenly watched by investors.
GBPUSD
Last week, the GBP traded 1.75% higher against the USD and closed at 1.45. The BoE held key interest rate steady at 0.5%, in line with market expectations, as the outlook for UK’s growth and inflation has been hurt by plunging oil prices. On the macroeconomic front, UK’s seasonally adjusted Markit manufacturing PMI unexpectedly advanced to a 3-month high level, while the nation’s Markit services PMI surprisingly rose to a six-month high level in January, indicating that the nation’s economy started the New Year on a strong note. Also, mortgage approvals surprisingly rose to a 4-month high level in December, suggesting that the housing market is ready to reap substantial gains in 2016. On the other hand, construction PMI fell more-than-expected to a 9-month low level in January, mainly led by a slowdown in new order growth. During the previous week, the pair traded at a high of 1.4670 and a low of 1.4236. The pair is expected to witness its first support at 1.4268 and second support at 1.4035, while the first resistance is expected at 1.4702 and second resistance at 1.4903. Looking ahead, investors await UK’s industrial production, manufacturing production and construction output data this week. Additionally, Britain’s total trade balance and NIESR GDP estimate data would also generate lot of market attention.
USDJPY
The USD declined against the JPY last week, closing 3.39% lower at 116.98. In economic news, Japan’s final Nikkei manufacturing PMI fell slightly in January. Further, the nation’s consumer confidence index weakened as expected during the same month, led by plummeting oil prices and a slowdown in emerging economies dented consumer sentiment. In contrast, Japan’s monetary base and the Nikkei services PMI advanced in January. Separately, the BoJ’s December monetary policy meeting minutes indicated that the board members unanimously agreed that there was no need to bring about any adjustments in the prevailing monetary policy as the underlying inflation trend was improving steadily. The USD hit a high of 121.49 and a low of 116.30 against the JPY in the previous week. The pair is expected to witness its first support at 115.02 and second support at 113.06, while the first resistance is expected at 120.21 and second resistance at 123.44. Moving ahead, market participants look forward to Japan’s trade balance and machine tool orders, along with housing loans data, scheduled to be released this week.
USDCHF
Last week, the USD traded 3.27% lower against the CHF and closed at 0.991. In economic news, Switzerland’s SECO consumer confidence index improved for the second consecutive time in the three months to January, mainly led by better labor market expectations. Also, the nation’s SVME PMI remained in expansionary territory during the same month. On the other hand, real retail sales contracted for the fifth consecutive month in December. The USD hit a high of 1.0248 and a low of 0.9882 against the CHF in the previous week. The pair is expected to witness its first support at 0.9786 and second support at 0.9651, while the first resistance is expected at 1.0152 and second resistance at 1.0382. Going forward, investors this week would closely monitor Switzerland’s unemployment rate and consumer price inflation data for further cues in the Swiss Franc.
USDCAD
During the previous week, the USD traded 0.69% lower against the CAD and ended at 1.3910. On the economic front, Canada’s unemployment rate surprisingly rose to a 2-year high level of 7.2%, while the RBC manufacturing PMI continued to remain in contractionary territory in January. On the other hand, the nation’s seasonally adjusted Ivey purchasing manager’s index unexpectedly advanced to a 4-year high level in January. During the previous week, the pair traded at a high of 1.4104 and a low of 1.3639. The pair is expected to find support at 1.3663, and a fall through could take it to the next support level of 1.3419. The pair is expected to find its first resistance at 1.4128, and a rise through could take it to the next resistance level of 1.4348. Moving ahead, market participants would concentrate on Canada’s housing starts as well as building permits data for further direction in the CAD.
AUDUSD
The AUD traded 0.1% lower against the USD last week, with the pair closing at 0.7072. Last week, the Reserve Bank of Australia (RBA) held official interest rate steady at 2.0%, in line with market expectations. In a post-meeting statement, the RBA Governor, Glenn Stevens, expressed optimism about Australia’s economic outlook, but at the same time also raised concerns about global financial turbulence and stated that the bank had room to lower interest rates, if needed. In other economic news, Australia’s trade deficit unexpectedly widened to a 6-month high level in December. Also, the nation’s seasonally adjusted retail sales surprisingly remained flat on a monthly basis in December. Additionally, the AiG performance of construction index declined for the second consecutive month in January. On the other hand, building approvals advanced more than expected on a monthly basis in December. The pair traded at a high of 0.7245 and a low of 0.7003 during the previous week. The pair is expected to witness its first support at 0.6968 and second support at 0.6864, while the first resistance is expected at 0.7211 and second resistance at 0.7349. Moving ahead, along with the release of NAB business confidence and business conditions data, market participants would also keep a close watch on the nation’s Westpac consumer confidence, consumer inflation expectation and home loans data this week.
Gold
During the previous week, gold traded 4.94% higher and ended at USD1173.40 per ounce, after disappointing US service sector data and a mixed jobs report diminished expectations of a Fed interest rate hike in the near term. Gold hit a high of USD1175.00 per ounce and a low of USD1117.10 per ounce during the previous week. Gold is expected to its find support at USD1135.87 per ounce, and a fall through could take it to the next support level of USD1097.53 per ounce. The yellow metal is expected to find its first resistance at USD1193.77 per ounce, and a rise through could take it to the next resistance level of USD1213.33 per ounce.
Crude Oil
Last week, crude oil weakened 8.12% to close at USD30.89 per barrel, amid stronger US Dollar and downbeat economic data from China coupled with deepening supply glut fears continued to hamper the commodity’s price. Oil prices remained under pressure, after the Energy Information Administration (EIA) disclosed that US crude stockpiles increased more-than-expected by 7.8 million barrels to a record high 502.7 million barrels in the week ended 29 January, while the American Petroleum Institute (API) indicated that US oil inventories rose by 3.8 million barrels last week. The black metal hit a high of USD33.64 per barrel and a low of USD29.40 per barrel in the previous week. Immediate downside, the first support level is seen at USD29.08 per barrel, followed by USD27.12 per barrel, while on the upside, the first resistance level situated in USD33.32 per barrel, followed by USD35.60 per barrel.
Good trades.
