Last week, the forex market was dictated by the monetary policy meetings of the US Federal Reserve (Fed) and the Bank of England (BoE).
The greenback ended the week higher, as the Fed’s move to raise interest rates was widely expected, but signs of increasing rates at a faster clip next year took markets by surprise, thus boosting gains in the greenback. The Fed, in its last monetary policy meeting of the year, raised the key interest rates for the first time this year by a quarter percentage point to between 0.50% and 0.75%, citing improving trajectory for the US economy, tighter labor market conditions and rising wage pressures. In a post-meeting statement, the central bank indicated that it has now penciled-in three rate hikes in 2017 instead of two under its prior forecast. Further, the central bank pushed up its expectations for economic growth to 1.9% in 2016, from an earlier projection of 1.8% and by 2.1% in 2017, from 2.0%. Meanwhile, the Richmond Fed President, Jeffrey Lacker stated that the Fed will likely need to raise interest rates more than three times next year.
Other economic data showed that, consumer prices in the US rose 0.2% on a monthly basis in November, rising for the fourth consecutive month and adding to evidence that inflation is gradually approaching the central bank’s goal. Further, fewer than expected Americans applied for fresh jobless benefits in the week ended 10 December 2016. Also, the nation’s NAHB housing market index unexpectedly surged to its highest level in eleven years in December, boosted by increasing optimism under the presidency of Donald Trump. Moreover, the nation’s manufacturing activity surged to its highest level in 21-months in December. Meanwhile, advance retail sales came in weaker than expected in November, posting its smallest gain in 3 months. On the other hand, the nation’s industrial production declined by the most in 8 months in November. Additionally, the nation’s manufacturing production disappointed in November, while business inventories dropped to an eleven month low in October. Further, US housing starts and building permits, both declined more than expected in November.
The Pound ended the week on a weaker footing, as the BoE, in its recent monetary policy meeting, left the key interest rate at 0.25% as expected, but raised concerns by lowering its inflation forecast for 2017. The central bank also maintained the current asset purchase program at £435.0 billion. Minutes of the meeting indicated that the UK economy appears to be growing at a healthy pace in the second half of the year but the central bank continues to expect a slowdown in 2017, as firms put their investment decisions on hold. Further, it also highlighted that inflation may not rise as quickly as expected in the near-term.
In economic news, UK’s inflation advanced at the fastest annual pace in more than two years in November, driven by a sharp depreciation in pound, while the ILO unemployment rate remained steady at an eleven-year low level of 4.8% in the three months to October.
EURUSD
Last week, the EUR traded 1.06% lower against the USD and closed at 1.0447, after the Eurozone’s seasonally adjusted industrial production unexpectedly declined in October, while the region’s seasonally adjusted trade surplus surprisingly narrowed in the same month. On the contrary, the region’s final annual inflation rose 0.6% in November, at par with market expectations. Further, the ZEW economic sentiment index advanced more than expected in December and the flash Markit manufacturing PMI unexpectedly climbed in the same month. Separately, Germany’s ZEW economic sentiment index surprisingly remained steady in December, while the annual inflation advanced to a two-year high of 0.8% in November. Also, the preliminary Markit manufacturing PMI advanced more than expected in December. However, activity in the nation’s services sector slowed in the same month. During the previous week, the pair traded at a high of 1.0670 and a low of 1.0367. Immediate downside, the first support level is seen at 1.0316, followed by 1.0190, while on the upside, the first resistance level situated in 1.0619, followed by 1.0796. Ahead in the week, market participants would concentrate on the Eurozone’s flash consumer confidence and economic bulletin report. Additionally, Germany’s Ifo expectations index, German Buba monthly report as well as GfK consumer confidence index would also be keenly watched by investors’.
GBPUSD
The GBP declined against the USD last week, closing 0.69% lower at 1.2487, after minutes of the BoE’s latest monetary policy meeting indicated that inflation may not rise as quickly as expected in the near-term. The central bank, held the benchmark interest rate steady at a record low level of 0.25%, as widely expected. In other economic news, Britain’s consumer price inflation advanced more than anticipated by 1.2% YoY in November and the retail sales unexpectedly climbed on a monthly basis in the same month. Further, the nation’s ILO unemployment rate remained steady at an eleven-year low level of 4.8% in the three months to October. However, the number of people employed fell in the August-October 2016 period. Additionally, the nation’s Rightmove house price index slid in December. During the previous week, the pair traded at a high of 1.2728 and a low of 1.2376. The pair is expected to witness its first support at 1.2329 and second support at 1.2176, while the first resistance is expected at 1.2681 and second resistance at 1.2880. Looking ahead, Britain’s public sector net borrowings, GfK consumer confidence, final GDP and Rightmove house price index, all slated to released this week would generate lot of market attention.
USDJPY
During the previous week, the USD traded 2.27% higher against the JPY and ended at 117.98. On the data front, Japan’s final industrial production remained flat on a monthly basis in October, whereas the flash machine tool orders dropped in November. On the contrary, the nation’s flash Nikkei manufacturing PMI rose in December, while the tertiary industry index rose less than expected in October. Additionally, the nation’s machinery orders came in better than expected in the same month. Other economic data showed that the nation’s Tankan large manufacturing index advanced in the fourth quarter of 2016, in line with market expectations. Meanwhile, the nation’s Tankan non-manufacturing index remained unchanged in the same period. During the previous week, the pair traded at a high of 118.66 and a low of 114.74. The pair is expected to find its first support at 115.55 and first resistance at 119.47. The second support is expected at 113.19 and second resistance at 121.03. This week, market participants would focus on BoJ’s interest rate decision along with Japan’s adjusted merchandise trade balance and all industry activity index.
USDCHF
During the previous week, the USD traded 0.78% higher against the CHF and ended at 1.0254. On the economic front, the Swiss National Bank (SNB) kept key interest rate unchanged at -0.75%. The SNB Chairman, Thomas Jordan stated that going further, it might become necessary to further lower rates in Switzerland from their current record-low levels and reiterated that the central bank would continue to remain active in the foreign exchange market, as necessary with the Swiss Franc still considered to be significantly overvalued. Further, the SNB slightly downgraded its inflation forecasts. It now sees 2017 inflation at 0.1% versus its previous September forecast of 0.2% and the 2018 estimate has been reduced slightly to 0.5% from 0.6%. In other economic news, Switzerland’s ZEW survey for economic expectations index climbed in December. Separately, the Swiss government’s expert group, SECO has forecasted a pick up in Switzerland’s economy, driven by growth in both domestic demand and foreign trade. During the previous week, the pair traded at a high of 1.0344 and a low of 1.0084. Immediate downside, the first support level is seen at 1.0123, followed by 0.9973, while on the upside, the first resistance level situated in 1.0383, followed by 1.0493. Moving ahead, investors will closely monitor Switzerland’s trade balance and KOF leading indicator index, both slated to release this week.
USDCAD
The USD rose against the CAD last week, closing 1.18% higher at 1.3331. The Bank of Canada (BoC) Governor, Stephen Poloz, stated that weaker than expected exports and disruption in energy production due to Alberta wildfires contributed to a “challenging” year for the Canadian economy. On the data front, Canada’s existing home sales declined on a monthly basis in November. During the previous week, the pair traded at a high of 1.3417 and a low of 1.3082. The pair is expected to witness its first support at 1.3145 and second support at 1.2946, while the first resistance is expected at 1.3480 and second resistance at 1.3616. Going forward, Canada’s GDP, consumer price inflation and retail sales data, due to release this week would pique significant amount of investor attention.
AUDUSD
During the previous week, the AUD traded 1.97% lower against the USD and ended at 0.7304, after Australia’s seasonally adjusted unemployment rate unexpectedly rose to 5.7% in November. Also, the nation’s Westpac consumer confidence index eased in December, whereas the NAB business conditions index dropped in November. On the other hand, the nation’s employment jumped in November, while the consumer inflation expectations improved in December. Moreover, the nation’s NAB business confidence index inched higher in November. Meanwhile, the nation’s house price index rose on a quarterly basis in 3Q 2016. During the previous week, the pair traded at a high of 0.7525 and a low of 0.7266. The pair is expected to find its first support at 0.7200 and first resistance at 0.7459. The second support is expected at 0.7104 and second resistance at 0.7622. Looking ahead, traders will keep a close watch on Reserve Bank of Australia’s recent meeting minutes, the sole important release this week.
Gold
Gold traded 2.15% lower during the previous week, closing at USD1134.88 per ounce, amid a surge in the greenback as the US Federal Reserve, in its latest monetary policy meeting, raised interest rates for the second time in a decade and signaled that interest rates would rise at a faster pace than previously projected in 2017. The yellow metal witnessed a high of USD1168.00 per ounce and a low of USD1124.30 per ounce in the previous week. The yellow metal is expected to witness its first support at USD1117.20 per ounce and second support at USD1098.90 per ounce, while the first resistance is expected at USD1160.90 per ounce and second resistance at USD1186.30 per ounce.
Crude Oil
Last week, crude oil traded 0.78% higher and ended at USD51.90 per barrel, amid increased optimism that output cuts by major oil producers will curb global glut. Gains in oil prices were supported further, after the Energy Information Administration (EIA) showed that US crude stockpiles fell by 2.6 million barrels to 483.2 million barrels in the week ended 09 December. Meanwhile, the American Petroleum Institute (API) indicated that US oil inventories unexpectedly rose by 4.7 million barrels last week. The commodity hit a high of USD54.49 per barrel and a low of USD49.95 per barrel in the previous week. The commodity is expected to find its first support at USD49.76 per barrel and first resistance at USD54.30 per barrel. The second support is expected at USD47.59 per barrel and second resistance at USD56.67 per barrel.
That the trades are in the middle of us. ;)
