Last week, the forex market was dictated by the monetary policy decisions of key central banks.
The greenback ended the week lower, on continued uncertainties over the outcome of the US Presidential election. Meanwhile, the US Federal Reserve (Fed), in its latest monetary policy meeting, left the key interest rate steady at 0.50%, in line with market expectations, but signaled it could hike interest rates in December as the economy gathers momentum, inflation picks up and job gains remain solid. In a statement post meeting, policymakers continued to acknowledge that the case for an interest rate rise is getting stronger, but decided to wait for some further evidence of progress in the economy. Moreover, policymakers also expressed more optimism that inflation was moving towards the central bank’s 2.0% target.
Another set of economic data revealed that, US unemployment rate dropped to 4.9% in October, meeting market expectations and pointing to a healthy labor market. Additionally, non-farm payrolls rose less than expected in October, but suggested that employers maintained a strong pace of hiring, thus supporting the case for a Fed interest rate hike in December. Further, the nation’s average hourly earnings increased to its highest level in seven years on an annual basis in October. Moreover, the ISM manufacturing activity index advanced for the second straight month and marked its highest level in three-months in October, indicating that manufacturing sector is showing signs of stability after struggling to perform over the past year. Further, factory orders advanced for the third straight month in September. Moreover, the nation’s trade deficit narrowed to a 19-month low level in September. Meanwhile, ADP’s private sector employment added fewer employees in October, recording the smallest increase since May 2016 and raising fresh doubts over the health of the nation’s labor market. Also, the ISM non-manufacturing PMI expanded at a slower rate in October. Further, the number of Americans filing for fresh unemployment benefits unexpectedly edged up to its highest level in almost three months last week. On the other hand, the nation’s final durable goods orders fell in September. Also, the nation’s construction spending surprisingly dropped in the same month.
The Pound ended the week on a stronger footing, after UK’s high court ruled that the government must obtain approval from Parliament before starting the Brexit process, easing fears about a ‘hard’ exit from the EU. Meanwhile, the Bank of England (BoE), in its latest monetary policy meeting, held the benchmark interest rate steady at a record low 0.25%, in line with market expectations and scrapped plans to cut interest rates further, after the British economy showed resilience following the Brexit vote.
EURUSD
The EUR traded 1.38% higher against the USD last week, with the pair closing at 1.1135, after the Euro-zone’s annual inflation advanced in October. Additionally, the region’s seasonally adjusted flash GDP remained steady at 0.3% in the three months to September. Moreover, the region’s manufacturing sector accelerated in October, while activity in services sector expanded less than expected in the same month. Also, unemployment rate remained unchanged at 10.0% in September. Separately, the ECB, in its economic bulletin report, stated that the Eurozone’s economy should continue to expand, albeit at a moderate pace. Further, it indicated that comprehensive monetary policy measures taken by the ECB has helped the region’s economy to remain resilient to global economic and political uncertainty. Elsewhere, Germany’s seasonally adjusted unemployment rate unexpectedly dropped to 6.0% in October. Moreover, the nation’s final Markit services PMI surprisingly advanced in October, while the final Markit manufacturing PMI unexpectedly rose in the same month. The EUR hit a high of 1.1142 and a low of 1.0936 against the USD in the previous week. The pair is expected to find its first support at 1.1004 and first resistance at 1.1210. The second support is expected at 1.0867 and second resistance at 1.1279. This week, investors would focus on Eurozone’s Sentix investor confidence, OECD’s economic outlook and retail sales data. Also, Germany’s final consumer price inflation, construction PMI, industrial production and trade balance data would also be keenly watched by investors.
GBPUSD
The GBP traded 2.77% higher against the USD last week, with the pair closing at 1.2517, after UK’s High Court ruled that only Parliament could start the process of leaving the European Union and as the BoE left the key interest rate steady at a record low of 0.25%. Moreover, the BoE Governor, Mark Carney, stated that the central bank is ready to tighten or ease monetary policy in response to inflation developments. Meanwhile, the central bank raised its 2017 inflation forecast to 2.7% from 2.0% forecasted earlier, citing the pronounced tumble in Sterling. Further, the BoE also revised up its economic growth forecast to 2.2% and 1.4% in 2016 and 2017, respectively. In other economic news, UK’s manufacturing sector expanded at a slower than expected pace in October, while the Markit services and construction PMIs rose unexpectedly in the same month. Further, the nation’s mortgage approvals for house purchases advanced more than expected in September. During the previous week, the pair traded at a high of 1.2557 and a low of 1.2144. Immediate downside, the first support level is seen at 1.2255, followed by 1.1993, while on the upside, the first resistance level situated in 1.2668, followed by 1.2819. Looking ahead, market participants would closely monitor Britain’s industrial and manufacturing production, NIESR GDP estimate, total trade balance, BRC retail sales and RICS house price balance data, all due to release this week.
USDJPY
During the previous week, the USD traded 1.5% lower against the JPY and ended at 103.12. The Japanese Yen gained ground, after the Bank of Japan (BoJ) held the benchmark interest rate steady at -0.1%, in line with market expectations. However, the central bank pushed back the timeline for hitting the 2.0% inflation goal to around fiscal 2018, from fiscal 2017, following a raft of poor economic data and signaled that it will stand pat unless a severe market shock threatens to derail a fragile recovery. In other economic news, Japan’s final manufacturing PMI advanced in October, whereas the services PMI expanded in the same month. On the contrary, the nation’s consumer confidence index declined more than expected in October. Meanwhile, flash industrial production and retail trade unexpectedly remained flat in September. The pair traded at a high of 105.23 and a low of 102.55 during the previous week. The pair is expected to witness its first support at 102.04 and second support at 100.95, while the first resistance is expected at 104.72 and second resistance at 106.31. Moving ahead, BoJ’s September meeting minutes, trade balance (BOP basis), Eco Watchers’ survey, tertiary industry index and machine orders, all slated to release this week would keep investors on their toes.
USDCHF
During the previous week, the USD traded 2.02% lower against the CHF and ended at 0.9680. On the data front, Switzerland’s SVME-purchasing managers’ index rose in October. Additionally, the nation’s SECO consumer climate index improved in 4Q 2016, at par with market consensus. On the contrary, the nation’s real retail sales eased on an annual basis in September. The USD hit a high of 0.9908 and a low of 0.9681 against the CHF in the previous week. The pair is expected to find support at 0.9607, and a fall through could take it to the next support level of 0.9531. The pair is expected to find its first resistance at 0.9834, and a rise through could take it to the next resistance level of 0.9985. Moving ahead, investors will closely monitor Switzerland’s consumer price inflation and unemployment rate data, both scheduled to release this week.
USDCAD
The USD rose against the CAD last week, closing a tad higher at 1.3402. Macroeconomic data revealed that, Canada’s gross domestic product (GDP) climbed by 0.2% on a monthly basis in August, meeting market expectations, growing for the third straight month. Moreover, the nation’s unemployment rate remained unchanged at 7.0% in October, meeting market expectations, while the RBC manufacturing PMI edged up in the same month. Also, the nation’s seasonally adjusted Ivey PMI unexpectedly rose to a nine-month high level in October. On the contrary, the nation’s international merchandise trade deficit surprisingly rose to a record high level in September. The pair traded at a high of 1.3465 and a low of 1.3354 during the previous week. The pair is expected to find its first support at 1.3350 and first resistance at 1.3461. The second support is expected at 1.3297 and second resistance at 1.3519. Going forward, this week market participants would focus on a speech by the Bank of Canada Governor, Stephen Poloz, along with Canada’s housing starts, building permits and new house price index.
AUDUSD
The AUD strengthened against the USD last week, closing 0.99% higher at 0.7670, after the Reserve Bank of Australia (RBA), in a widely expected move, left the benchmark interest rates unchanged at 1.5%. In a post meeting statement, the RBA Governor, Philip Lowe, stated that having eased monetary policy at its May and August meetings, the board found it prudent to hold the key interest rate steady at this meeting as it would be consistent with the central bank’s output growth target and to boost inflation in the nation. Further, he expressed confidence in the nation’s economy and added that it will continue to grow at its “potential rate” before gradually strengthening, with inflation expected to quicken over the next two years. Separately, minutes of the RBA’s latest monetary policy meeting showed that the board saw “reasonable prospects” of achieving sustainable economic growth and added that inflation will remain steady in short term and will rise gradually to 2.0% by end of 2018. In other economic news, Australia’s AiG performance of manufacturing and services indices expanded in October. Further, the nation’s trade deficit narrowed to its lowest level in twenty months in September. Also, seasonally adjusted retail sales advanced in the same month. The AUD hit a high of 0.7697 and a low of 0.7583 against the USD in the previous week. The pair is expected to find its first support at 0.7605 and first resistance at 0.7719. The second support is expected at 0.7537 and second resistance at 0.7765. Looking ahead, Australia’s AiG performance of construction, NAB business confidence, Westpac consumer confidence and consumer inflation expectation, all slated to release this week, would be on investors’ radar.
Gold
Gold rose last week, closing 2.32% higher at USD1305.06 per ounce, as uncertainty surrounding the upcoming US Presidential election boosted the yellow metal’s attractiveness as a safe-haven asset. Last week, the precious metal traded at a high of USD1309.30 per ounce and a low of USD1271.90 per ounce. The precious metal is expected to find its first support at USD1281.63 per ounce and first resistance at USD1319.03 per ounce. The second support is expected at USD1258.07 per ounce and second resistance at USD1332.87 per ounce.
Crude Oil
Crude oil weakened in the previous week, closing 9.51% lower at USD44.07 per barrel, recording its largest weekly loss since January 2016, as signs of rising tension between Saudi Arabia and Iran added to uncertainties over the proposed output cut. Oil prices failed to find support, after the Energy Information Administration (EIA) indicated that US crude oil inventories rose significantly by 14.4 million barrels to 482.6 million barrels during the week ended 28 October, while the American Petroleum Institute (API) reported a massive build of 9.3 million barrels in US crude stockpiles, recording its largest increase since March 2016. Last week, the commodity traded at a high of USD48.74 per barrel and a low of USD43.57 per barrel. The commodity is expected to find its first support at USD42.22 per barrel and first resistance at USD47.39 per barrel. The second support is expected at USD40.31 per barrel and second resistance at USD50.65 per barrel.
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