Weekly Currency Report
The highlight of the week was the release of the European Central Bank (ECB) and the US Federal Reserve’s most recent monetary policy meeting minutes.
The greenback ended mixed last week. The FOMC minutes revealed that the Fed policymakers were worried that tighter global financial conditions could hit the US economy and considered changing their planned path of interest rate hikes in 2016. However, despite more cautious outlook, the members acknowledged that the labor market continues to be one of the few bright spots in the economy and further reiterated that economic data will guide the pace of future interest rate hikes.
On the macroeconomic front, US industrial production registered its largest 14-month gain in January, indicating that the economy regained some ground in early 2016. Additionally, the nation’s core consumer price index rose by the most in nearly 4-1/2 years, thus keeping the Fed rate hike on the table. On the other hand, the nation’s housing starts fell for the second straight month, while building permits, edged down in January.
The ECB’s January meeting minutes showed that policy makers unanimously agreed that the Eurozone economic outlook had darkened amid financial market volatility and weakness in emerging markets, thus underlining the bank’s readiness to provide additional stimulus if needed in March. In other economic news, the Eurozone’s seasonally adjusted trade surplus narrowed more-than-expected in December. Additionally, the region’s preliminary consumer confidence index declined more-than-anticipated in February, reaching its lowest level since December 2014. Meanwhile, in Germany, the ZEW economic sentiment index deteriorated to a sixteen-month low level in February, led by concerns about global economy and plunging oil prices.
The British Pound ended the week in the red, after UK’s consumer price inflation fell more-than-expected on a monthly basis in January. On the other hand, the nation’s annual inflation edged up to a 12-month high. Meanwhile, retail sales rebounded better-than-expected and rose by the most in more than two years on a monthly basis in January. Further, ILO unemployment rate remained steady at a decade low level during the three months to December. However, wage growth remained subdued, thus underscoring the view that the Bank of England (BoE) might keep interest rates pegged at record lows for some time.
Separately, the Organization for Economic Co-operation and Development (OECD) lowered its global growth forecast for 2016 to 3.0%, down from its previous forecast of 3.3%, citing plunge in commodity prices and weak business investment.
The EUR weakened against the USD last week, closing 1.11% lower at 1.1130, after the ECB President, Mario Draghi, stated that the central bank is set to add more stimulus in the next month to boost inflation and growth in the Eurozone, amid renewed warnings about the outlook for the global economy, financial market volatility and tumbling oil prices. Separately, the ECB’s recent monetary policy meeting minutes revealed that aggressive actions on easing monetary policy further are on the table in the near-term. In other economic news, the Euro-zone’s preliminary consumer confidence index fell more-than-anticipated to the lowest level since December 2014 in February, suggesting that the consumer sentiment regarding the nation’s growth prospects has deteriorated. Moreover, the region’s ZEW economic sentiment survey index fell to a 15-month low level in February. Meanwhile, Germany’s economic sentiment index dropped to its lowest level in sixteen-months in February, led by worries about the global economic slowdown and tumbling oil prices. The pair traded at a high of 1.1193 and a low of 1.1067 during the previous week. The pair is expected to find support at 1.1067, and a fall through could take it to the next support level of 1.1003. The pair is expected to find its first resistance at 1.1193, and a rise through could take it to the next resistance level of 1.1256. This week, investors would focus on the Markit manufacturing and services PMI data across the Euro-zone, to gauge the strength in the European economy. Additionally, Germany’s seasonally adjusted Q4 GDP data as well as unemployment rate data would also be closely watched by investors.
The GBP declined against the USD last week, closing 1.03% lower at 1.4359, after the release of mixed jobs and downbeat inflation data in the UK. Data showed that, UK’s consumer price index (CPI) declined more-than-expected on a monthly basis in January. On the other hand, on an annual basis, CPI climbed to a 12-month high level in January. Meanwhile, the nation’s retail sales increased the most in more than two years on a monthly basis in January. Separately, the OECD projected the UK economy to grow by 2.1% in 2016 and 2.0% in 2017, down from an earlier forecast of 2.4% and 2.3%, respectively. Other economic data indicated that UK’s ILO unemployment rate unexpectedly remained steady at a decade low level during the three months ended December 2015. Further, the number of people employed advanced during the same period. However, the annual average weekly earnings rose at the slowest pace since February 2015 in the December quarter. During the previous week, the pair traded at a high of 1.4518 and a low of 1.4235. The pair is expected to witness its first support at 1.4224 and second support at 1.4088, while the first resistance is expected at 1.4506 and second resistance at 1.4653. Looking ahead, this week investors await the release of UK’s flash seasonally adjusted Q4 GDP and Gfk consumer confidence data, to get better insights in the UK economy.
During the previous week, the USD traded 0.08% higher against the JPY and ended at 123.90. The Japanese Yen weakened, after the nation’s preliminary Q4 GDP contracted more-than-anticipated, thus heaping pressure on the nation’s policymakers to take action and prop up growth. Further, the nation’s final estimate of industrial production in Japan declined, while the all industry activity index fell more-than-anticipated on a monthly basis in December. Also, merchandise total trade balance posted a deficit in January. On the other hand, Japan’s adjusted merchandise trade surplus rose more-than-anticipated in January, while machine orders rose less-than-expected on a monthly basis in December. The pair traded at a high of 114.89 and a low of 112.31 during the previous week. The pair is expected to witness its first support at 111.67 and second support at 110.70, while the first resistance is expected at 114.26 and second resistance at 115.87. Going ahead, investors will keep a close eye on Japan’s flash Nikkei manufacturing PMI and national consumer price inflation data, set for release this week.
During the previous week, the USD traded 1.4% higher against the CHF and ended at 0.9902. In economic news, Switzerland’s trade surplus increased to a 3-month high level in January. On the other hand, the nation’s ZEW expectations index further declined in February. The pair traded at a high of 0.9970 and a low of 0.9847 during the previous week. Immediate downside, the first support level is seen at 0.9843, followed by 0.9784, while on the upside, the first resistance level situated in 0.9965, followed by 1.0028. Going forward, investors this week would closely monitor Switzerland’s Q4 industrial production and UBS consumption indicator data for further cues in the Swiss Franc.
Last week, the USD traded 0.68% lower against the CAD and closed at 1.3769. In macroeconomic news, Canada’s consumer price inflation unexpectedly rose on a monthly basis in January, while the annual inflation rate advanced to its highest level since November 2014. On the other hand, the nation’s retail sales declined at the fastest pace in more than five years on a monthly basis in December. Separately, the OECD cut Canada’s growth forecast to 1.4% in 2016 and 2.2% in 2017, from an earlier forecast of 2.0% and 2.3% respectively, as the collapse in oil prices takes a toll on the nation. In other economic news, Canada’s existing home sales rebounded on a monthly basis in January. The pair traded at a high of 1.3913 and a low of 1.3654 during the previous week. Immediate downside, the first support level is seen at 1.3644, followed by 1.3519, while on the upside, the first resistance level situated in 1.3904, followed by 1.4038. With no economic releases in Canada this week, investor sentiment would be governed by US macroeconomic data.
The AUD strengthened against the USD last week, closing 0.68% higher at 0.7149. Last week, the Reserve Bank of Australia (RBA), in the minutes of its February meeting, stated that recent positive domestic news showed gradual increase in Australia’s economic growth and that record-low rates and a weaker local dollar were already underpinning growth. Further, the board members reiterated that the central bank remains watchful of the turbulence in global financial markets and has the flexibility to lower interest rates further, if necessary. In macroeconomic news, Australia’s unemployment rate surprisingly rose to 6.0% in January, its highest level since September 2015, as the nation’s job market shrank and the number of people looking for work grew. Additionally, the Westpac leading index declined on a monthly basis in January. During the previous week, the pair traded at a high of 0.7188 and a low of 0.7069. The pair is expected to witness its first support at 0.7083 and second support at 0.7017, while the first resistance is expected at 0.7202 and second resistance at 0.7254. Moving ahead, market participants would look forward to the release of Australia’s Westpac-MNI consumer sentiment data this week.
Last week, gold fell 0.9% to close at USD1226.80 per ounce, as a broad rally in global equity markets pointed towards investor appetite for risk. The yellow metal hit a high of USD1240.60 per ounce and a low of USD1191.50 per ounce in the previous week. The yellow metal is expected to witness its first support at USD1200.60 per ounce and second support at USD1171.50 per ounce, while the first resistance is expected at USD1249.70 per ounce and second resistance at USD1269.70 per ounce.
Crude oil traded 0.68% higher in the previous week, closing at USD29.64 per barrel, as a deal between the OPEC and non-OPEC members to freeze output raised hopes of reduction in global supply glut. However, oil prices failed to find further support, after the Energy Information Administration (EIA) indicated that US crude oil stocks rose by 2.1 million barrels to 504.1 million barrels in the week ended 12 February. On the other hand, the American Petroleum Institute (API) reported that US oil inventories unexpectedly narrowed by 3.3 million barrels. Crude oil hit a high of USD31.98 per barrel and a low of USD28.70 per barrel in the previous week. Crude oil is expected to its find support at USD28.39 per barrel, and a fall through could take it to the next support level of USD26.91 per barrel. The yellow metal is expected to find its first resistance at USD31.67 per barrel, and a rise through could take it to the next resistance level of USD33.47 per barrel.
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