Weekly Forex Update The greenback rallied against major currencies last week, after the Federal Reserve (Fed) chief, Janet Yellen indicated that the central bank could accelerate plans to raise interest rates if US data on inflation and employment continues to improve more rapidly than expected. However, she further suggested that recovery in the nation still remains fragile and needs support in the form of easy monetary policy. Also, the St. Louis Fed President, James Bullard opined that with the US economy attaining normalcy, the central bank may act soon to avoid any economic problems that could arise in the near future. The Fed’s Beige Book survey released during the week, revealed that the economy grew in all regions of the US in June and early July, buoyed by rise in consumer spending. Meanwhile, “risk-off” sentiment prevailed among investors as concerns over tensions in Ukraine and the Middle East continued to support safe-haven demand. On Thursday, a civil airplane of the Malaysian Airlines was shot down over disputed Ukrainian region, killing all the people aboard, with the US blaming Ukrainian pro-Russian separatists for the act. The crash came a day after the US and the European Union announced a fresh round of sanctions against Russia. Markets were also jittery after Israel late Thursday announced ground offensive in Gaza. The USD came under pressure on Friday, after the Thomson Reuters/University of Michigan preliminary consumer sentiment index slipped to a four-month low in July, while the Conference Board’s leading index in the US rose less than expected in June. The Euro fell against the USD, after data indicated that inflation in the Euro-zone stayed low as expected in June. Meanwhile, disappointing industrial production data added to evidence that economic growth in the region is slowing. The common currency also came under pressure on rising risk aversion among investors, as tensions in the Eastern Europe region resurfaced, following news of attack on a civilian flight above the Ukrainian airspace. The Pound failed to gain traction against its US counterpart, after the testimony by the Fed chief supported the greenback, while “risk-off” sentiment prevailed among investors amid geopolitical developments in the Middle East and the Eastern Europe. The Japanese Yen came under pressure, after minutes of the Bank of Japan’s (BoJ) June policy meeting indicated that majority of policymakers agreed on continuing its stimulus measures to achieve its inflation target of 2%. Furthermore, the policymakers insisted that the central bank should closely monitor geopolitical risks posed by Ukraine and Iraq on the Japanese economy. EUR USD Last week, the EUR traded 0.62% lower against the USD and closed at 1.3524, following the recent spate of disappointing economic reports from the Eurozone. Industrial production dropped sharply in May, reinforcing concerns over economic recovery in the region. Construction output declined markedly in May, after rebounding in the previous month. Also, the current account surplus fell to a seasonally adjusted €19.5 billion in May from €21.6 billion in the previous month. Data released on Thursday confirmed that inflation in the region remained below the ECB’s target for the ninth consecutive month in June. The final consumer price index held steady at 0.5% as initially estimated in June. Moreover, the German economic confidence weakened for the seventh consecutive month in July. Earlier in the week, the European Central Bank (ECB) President, Mario Draghi expressed concerns over a stronger Euro and urged that it would hurt the recovery process in the Eurozone. He reiterated his earlier stance that policymakers are committed to use “unconventional measures”, if required. During the week, the pair traded at a high of 1.3641 and a low of 1.3490. The pair is expected to find its first support at 1.3462, with the next support expected at 1.3401. The first resistance is at 1.3613, and the next at 1.3703. Ahead this week, investors have their plate full with a raft of manufacturing PMI data scheduled for release across the Europe. Additionally, the Eurozone consumer confidence data and the German Ifo sentiment indices will be closely watched. GBP USD In the last week, GBP traded 0.16% lower against the USD and closed at 1.7088, despite positive economic data from the UK. Data revealed that consumer price inflation in the UK rose more than expected to 1.9% in June, tilting the scale in favor of the Bank of England (BoE) to raise interest rate sooner than expected. Moreover, labor market report indicated that the unemployment rate in the UK dropped to 6.5% for three months to May, while the number of people seeking jobless benefits also declined more than expected in June. The GBP also came under pressure, amid increased demand for save haven assets as geopolitical tensions between Russia and the West escalated. Moreover, increased ground offensive by Israel in Gaza, prompted traders to stay away from riskier assets. The pair traded at a high of 1.7192 and a low of 1.7036 in the previous week. GBPUSD is expected to find its first support at 1.7019, with the next at 1.6949. Resistance exists first at 1.7175, and then at 1.7261. In the week ahead, UK’s preliminary GDP data for the second quarter and the minutes of BoE’s latest monetary policy meeting would be crucial for determining short term trend in the Pound. USD JPY The USD traded marginally higher against the JPY over the past week, closing at 101.34. The Yen came under pressure, following the minutes of the Bank of Japan’s (BoJ) latest monetary policy meeting. The minutes indicated that nation’s sluggish exports and geopolitical tensions surrounding Ukraine and Iraq might hamper Japan’s inflation in the near term. Additionally, the minutes indicated that quantitative and qualitative monetary easing measures has been exerting its intended effects, and the bank will continue this measures to achieve the price stability target of 2.0%. In economic news, Japans department store sales fell 4.6% (YoY) in June, marking the third successive month of decline in sales. The pair traded at a high of 101.81 and a low of 101.09. The pair is expected to find its first support at 101.01, with the next support expected at 100.69. The first resistance is at 101.74, and the next at 102.14. Ahead this week, market participants would eye the Japanese consumer price inflation data along with domestic trade, leading economic and coincident indicators. USD CHF The USD traded 0.71% higher against the CHF and closed at 0.8985 in the last week, after the Fed chief, Janet Yellen, signaled that the central bank would raise interest rates sooner than expected, if the US data on labor and inflation shows sustained improvement. Meanwhile, the Swiss Franc lost ground, after the ZEW survey reported that economic expectations in Switzerland declined to 18-month low level of 0.1 in July, compared to a reading of 4.8 in the prior month. Markets were anticipating the economic expectations index to climb to 5.0. A separate data revealed that the producer and import price index dropped 0.8% in June, in line with market expectations. During the period, the pair traded at a high of 0.9005 and a low of 0.8898. The first support is at 0.8920, and the next at 0.8856. Resistance exists first at 0.9027, and then at 0.9070. Apart from external cues, traders would keep an eye on the Swiss trade balance data for June. USD CAD Last week, the USD traded tad lower against the CAD and closed at 1.0733. Earlier, the Canadian dollar came under pressure, after the Bank of Canada (BoC) maintained its overnight interest rate at 1.0%, in line with market expectations. Moreover, the BoC Governor indicated that the Canadian economy is growing slowly than previously thought and will take longer time to fully recover. However, the CAD rebounded on Friday, as upbeat Canadian wholesales data lent support to the Loonie. A separate data revealed that consumer price index in the nation rose 2.4% from a year earlier, the fastest in more than two years, trumping market estimates for a 2.3% increase. Other data revealed that the Canadian manufacturing sales registered its strongest gain in almost a year and climbed 1.6% in May, surpassing market expectations of a 1.0% rise and reversing previous month’s 0.2% decline. Existing home sales in Canada increased 0.8% (MoM) in June, while the Teranet and National Bank of Canada reported that housing price index in Canada rose 4.4% (YoY) in June. USDCAD traded at a high of 1.0796 and a low of 1.0706 in the previous week. The first support is at 1.0694, with the next at 1.0655. The first resistance is at 1.0784, while the next is at 1.0835. Moving ahead, consumer price inflation and retail sales data from Canada and a slew of economic releases from the US will be the key market triggers. AUD USD The AUD finished slightly lower against the USD last week, and closed at 0.9390. The minutes of the Reserve Bank of Australia’s (RBA) latest monetary policy meeting revealed concerns among policymakers about non-mining growth and the elevated value of the Australian Dollar. The minutes also indicated that consumer demand might remain subdued in the coming months. However, positive economic data from China, Australia’s largest trading partner boosted investors demand for the AUD. Data revealed that industrial production in China registered a 9.2% rise in June, while retail sales rose 12.4%. Moreover, upbeat Chinese economic growth data for the second quarter also supported the Aussie Dollar. During the week, the pair traded at a high of 0.9412 and a low of 0.9329. The first support is at 0.9342, and the next at 0.9294. The first resistance is at 0.9425, and the next at 0.9460. This week, the Australian inflation data will be on investors’ radar. Also, speech by the RBA Governor, Glenn Stevens will be monitored closely. Additionally, preliminary manufacturing PMI data from China would be a key determinant for the Aussie. Gold In the prior week, Gold traded 1.97% lower against the USD and closed at USD1311.00, as the greenback strengthened triggered by Fed Chief, Janet Yellen’s comments that the interest rate in the US would be raised sooner than expected, while traders also took advantage of recent spike in gold prices for profit-taking. Nonetheless, the losses were limited as the greenback came under pressure on Friday, after data revealed that US consumer sentiment index fell unexpectedly in July, while leading economic index in the US rose less than expected in June. Continued tensions in Eastern Europe and Middle East also supported gold prices. The yellow metal traded at a high of 1339.90 and a low of 1292.60 in the previous week. Gold is expected to find support at 1289.10 and the next at 1267.20. The first resistance is at 1336.40, while the next is at 1361.80. Looking ahead, gold traders will focus on inflation and durable goods order numbers along with other economic data from the US. Crude Oil Oil prices surged 2.28% last week and closed at USD103.13, amid growing geopolitical tensions in Eastern Europe and Middle East. On Wednesday, the US and the European Union announced fresh sanctions on Russia, over its support of rebels in Ukraine. Tensions escalated on Thursday, after the Malaysian passenger plane was shot down in Eastern Ukraine, raising concerns that a wider conflict or further sanctions could disrupt supplies from Russia. Oil prices spiked further after Israel send ground troops into the Gaza Strip, intensifying turmoil in the Middle East, the world’s most important oil-producing region. A higher than expected drop in weekly US crude inventories also supported crude oil prices. According to data released by the US Energy Information Administration (EIA), US crude stockpiles declined 7.5 million barrels for the week ended July 11. Meanwhile, the American Petroleum Institute (API) reported a drop of 4.8 million barrels in crude inventories for the same week. Oil traded at a high of 103.94 and a low of 99.01 in the previous week. Oil has its first major support at 100.11, while the next support exists at 97.10. The first resistance is at 105.04, and the next at 106.96. In the week ahead, oil traders will keep a track on manufacturing data from the Eurozone and China for further direction. Additionally, US durable goods orders and housing data will be eyed for further direction. Happy trading.
Posted on: Mon, 21 Jul 2014 08:20:25 +0000
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