Weekly Currency Report (2015.11.02)

Weekly Currency Report

Source: Direct FX (Review and Forex Cashback up to 85%)

The highlight of the week was the Fed’s interest rate decision. Policymakers at the Federal Open Market Committee (FOMC) surprised no one when it announced no change in interest rates, which are currently near 0%. However, the central bank tweaked its monetary policy statement and mentioned that if labor market and inflation condition continues to improve further, a rate hike could be appropriate at the FOMC’s next meeting in December, thus giving strong signals that an interest rate hike is still in the game. Additionally, the Fed also suggested that recent global headwinds have eased and downplayed concerns surrounding slowing growth in China.

The US annualized GDP growth substantially slowed in the third quarter of 2015 but still suggested that the world’s biggest economy continued to grow at a steady pace despite the pressures from a strong greenback and weakness abroad. Other economic data released during the week showed that personal income in the nation recorded its smallest gain since March while consumer spending increased less than anticipated in September. Additionally, US durable goods orders dropped in September, pointing that the nation’s economy was showing signs of losing momentum at the current moment. On the flip side, the number of Americans filing for jobless benefits for the first time rose marginally in the week ended 24 October, highlighting a firming labor market.

The Euro ended the week on a weaker footing. Macroeconomic data released during the week revealed that consumer price inflation in the Euro-zone and Germany came out of negative territory for October but still remained below the ECB’s 2% inflation target and will not dampen expectations of an expansion of the QE programme. Meanwhile, on a monthly basis, retail sales growth in Germany unexpectedly remained unchanged in September, fuelling concerns that a dip in private consumption might act as a drag on growth in the Euro zone’s largest economy this year. Also, GfK’s consumer sentiment index weakened slightly for November, amid concerns that unemployment will rise, a worry fuelled by the influx of migrants. On the other hand, jobless rate in the Euro-zone unexpectedly fell in September while in Germany, it remained steady at 6.4% in the same month.

The British Pound ended the week on a stronger footing, despite UK’s 3Q GDP figures indicating a disappointing picture of the nation’s economy, led by weak construction output which had its biggest quarterly fall in three years along with weakness in the UK manufacturing sector. The soft UK GDP report has raised doubts that the BoE could refrain from raising benchmark interest rate early next year. Separately, UK’s GfK consumer confidence index unexpectedly dipped to its lowest four month level in October, highlighting that consumers are less confident about the economic outlook due to global economic slowdown.

EURUSD

During the previous week, the EUR traded 0.1% lower against the USD and ended at 1.1006, following mixed economic data in the Euro-zone and Germany.

Data indicated that consumer prices stagnated on a monthly basis in October, thereby indicating that the ECB would insert additional stimulus in the Euro-economy to shore up consumer prices and to meet its 2.0% inflation target. Additionally, Germany’s consumer prices turned positive in October but still remained at ultra-low level, thus raising chances that persistently weak inflation would push the central bank to expand its stimulus program.

Other economic data showed that retail sales in Germany disappointed in September, defying analyst expectations for an increase while IFO survey showed that the Euro-zone’s biggest economy remained strong despite economic slowdown in emerging markets and the emission scandal at the nation’s biggest carmaker.

The EUR hit a high of 1.1097 and a low of 1.0897 against the USD in the previous week. Immediate downside, the first support level is seen at 1.0903, followed by 1.0800, while on the upside, the first resistance level situated in 1.1103, followed by 1.1200.

This week, investors would focus on the manufacturing and services PMI data across the Euro-zone to gauge the strength in the European economy. Additionally, Germany’s industrial production as well as factory orders data would also be keenly watched by investors.

GBPUSD

The GBP traded 0.74% higher against the USD last week, with the pair closing at 1.5428.

On the macro front, UK economy lost steam, after the nation’s GDP growth slowed more than anticipated in the three months ended September led by a slump in manufacturing and construction production amid a slowdown in China’s economy. Weaker than expected GDP data could trigger concerns that the UK economy’s dependence on the services sector is increasing further.

In other economic news, mortgage approvals in the nation fell for the first time in four months in September, suggesting reduced expectations of a near term interest rate hike by the BoE, while overall lending advanced at its fastest pace since April 2008 in the same month. Other economic data showed that consumer credit grew more anticipated in September.

The pair traded at a high of 1.5470 and a low of 1.5243 during the previous week. The pair is expected to find support at 1.5291, and a fall through could take it to the next support level of 1.5153. The pair is expected to find its first resistance at 1.5518, and a rise through could take it to the next resistance level of 1.5607.

Looking ahead, investors anxiously await the BoE’s interest rate decision this week. Meanwhile, Britain’s manufacturing and services PMI would also generate lot of market attention.

USDJPY

Last week, the USD traded 0.7% lower against the JPY and closed at 120.63. The Japanese Yen traded higher, after the BoJ refrained to step up its monetary stimulus and repeated its stance to increase its monetary base at an annual rate of ¥80 trillion, as the central bank’s effort are having the desired effects. Additionally, the BoJ Governor, Haruhiko Kuroda pushed back the time frame for achieving 2.0% inflation target due to the effect of sliding oil prices.

Separately, the BoJ slashed its growth outlook to 1.2% in the fiscal year to March 2016, down from an earlier projection of 1.7%.

Macroeconomic data released during the week showed that Japan’s national consumer price inflation remained steady on an annual basis in September while jobless rate came in line with analyst expectations in September. Also, industrial output in the nation unexpectedly rebounded on a monthly basis in September and retail trade advanced less than expected in the same period.

The USD hit a high of 121.50 and a low of 120.02 against the JPY in the previous week. Immediate downside, the first support level is seen at 119.93, followed by 119.23, while on the upside, the first resistance level situated in 121.41, followed by 122.19.

Moving ahead, investors would keep a close eye on Japan’s manufacturing and the services PMI data along with the consumer confidence index data. Meanwhile, the BoJ minutes from its recent monetary policy meeting would garner lot of market attention.

USDCHF

The USD traded 0.95% higher against the CHF last week, with the pair closing at 0.9877.

In economic news, Switzerland’s UBS consumption indicator improved slightly in September, while domestic sight as well as total sight deposits edged up in the week ended 23 October.

The USD hit a high of 0.9962 and a low of 0.9757 against the CHF in the previous week. The pair is expected to witness its first support at 0.9770 and second support at 0.9660, while the first resistance is expected at 0.9975 and second resistance at 1.0071.

Going forward, investors this week would closely monitor Switzerland’s consumer price inflation, SVME PMI and SECO’s consumer confidence data for further cues in the Swiss Franc.

USDCAD

During the previous week, the USD traded 0.66% lower against the CAD and ended at 1.3080.

The CAD strengthened, after the Canadian economy grew for the third consecutive month on a monthly basis in August, in line with market expectations, after it shrank in each of the first five months of the year.

In other economic news, Canada’s raw material price index rebounded stronger than expected on a monthly basis in September, while the industrial product index retreated more than forecasted in the same period.

The pair traded at a high of 1.3281 and a low of 1.3055 during the previous week. The pair is expected to find support at 1.2996, and a fall through could take it to the next support level of 1.2913. The pair is expected to find its first resistance at 1.3222, and a rise through could take it to the next resistance level of 1.3365.

Moving ahead, market participants would concentrate on Canada’s unemployment rate as well as the Ivey PMI and RBC’s manufacturing PMI data further direction in the CAD.

AUDUSD

Last week, the AUD traded 1.15% lower against the USD and closed at 0.7137, after expectations that a less than expected increase in Australia’s consumer prices could prompt the RBA for a third rate cut this year at its upcoming meeting this week. The soft inflation numbers highlighted that the nation’s weak economy is keeping a lid on the inflation.

Other economic data showed that new home sales in Australia dropped on a monthly basis in August while private sector credit grew more than consensus estimates in the same period.

During the previous week, the pair traded at a high of 0.7272 and a low of 0.7068. Immediate downside, the first support level is seen at 0.7047, followed by 0.6955, while on the upside, the first resistance level situated in 0.7251, followed by 0.7363.

Moving ahead, along with the release of RBA’s interest rate decision, market participants would also keep a close eye on Australia’s trade balance as well as retail sales data.

Gold

Gold fell last week, closing 1.92% lower at USD1142.11 per ounce, on increased speculations of an interest rate hike by the Fed’s at its December monetary policy meeting, following the central bank’s hawkish tone at its October FOMC meeting, thus hitting the demand for the non-interest bearing bullion.

The precious metal traded at a high of USD1183.10 per ounce and a low of USD1138.40 per ounce in the previous week.

The yellow metal is expected to witness its first support at USD1125.50 per ounce and second support at USD1109.60 per ounce, while the first resistance is expected at USD1170.20 per ounce and second resistance at USD1199.00 per ounce.

Crude Oil

Crude oil traded 4.46% higher in the previous week, closing at USD46.59 per barrel, after the number of rigs drilling for oil in the US narrowed by 16 last week to 578, notching its ninth consecutive weekly decline, thus indicating that US oil drillers are pulling their production.

Separately, the Energy Information Administration (EIA) showed that US crude oil stocks expanded by 3.4 million barrels to 480.0 million barrels in the week ended 23 October, while the American Petroleum Institute (API) indicated that US oil inventories edged up by 4.1 million barrels last week.

The commodity traded at a high of USD47.03 per barrel and a low of USD42.58 per barrel in the previous week.

Crude oil is expected to witness its first support at USD43.77 per barrel and second support at USD40.95 per barrel, while the first resistance is expected at USD48.22 per barrel and second resistance at USD49.85 per barrel.