Last week, the US Dollar fell against all majors with the exception of the Japanese Yen. Traders remained fixated on the US fiscal situation and its effects on the economy, as investors continued to hope for a solution with the debt ceiling having been hit.
Last week, the Federal Reserve Bank of St. Louis President, James Bullard forecasted that US economic growth would be 3.2% for 2013 and for 2014, attributing it in part to the central bank's recent policy easing. He also expressed doubts over tying the central bank's $85 billion monthly bond purchases to numerical levels of unemployment and inflation. Meanwhile, the Federal Reserve Bank of Minneapolis President, Narayana Kocherlakota stated that the Federal Reserve's policy of zero interest rates and asset purchases is insufficient, given forecasts for weak economic growth and low inflation for years to come.
After a rough start to the week that had the Euro eying exchanges rates below 1.3000 versus the US Dollar, the common currency took giant strides forward and to trade near the 1.33 mark, as the evident shift in European Central Bank (ECB) President Mario Draghi's stance helped stoked chatter that the central bank could temporarily suspend any plans for slashing interest rates. The ECB President, signalled that the Euro-zone is poised to stage an economic recovery in the second half of 2013. Similar views were echoed by the head of Euro area Finance Ministers, Jean-Claude Juncker.
Meanwhile, borrowing costs across major peripheral economies declined, with the Spanish ten year bond yields slipping below the critical 5% mark after Spain saw robust demand for its bonds in Thursday's auction.
However, Moody's downgraded Cyprus' bond rating deeper into the "Junk" territory, on concerns about the nation's debt burden. To add to the nation's woes, EU's top economic official, Olli Rehn, has ruled out a "haircut" on Cyprus's debt.
Over the weekend, Greek lawmakers passed a tax bill seeking to raise state revenue by €2.3 billion. The new tax bill passed is part of commitment needed to help the debt-stricken country meet its commitments to international creditors. Investors would now turn their attention to German Finance Minister, Wolfgang Schaeuble meeting with Greek anti-bailout politician Alexis Tsipras in Berlin to persuade him to support Athens' austerity measures.
On Friday, the Swiss Franc declined, as data revealed that the deflationary trend in the Swiss economy persisted for December. Annually, the CPI for December slipped at a greater than expected pace of 0.4%, matching the decline seen in the previous month. Moreover, a major Swiss bank indicated that it may impose charges on deposits held in Swiss Franc.
Moving on to Asia, the Japanese government on Friday approved a fresh round of stimulus spending worth ¥10.3 trillion ($116 billion) to jump-start the flagging economy, as Prime Minister Shinzo Abe signals determination to fulfill his campaign pledges. Speaking at a press conference, Shinzo Abe indicated that the measures would include spending on public works, disaster prevention and financial aid for small firms. He said that the new measures would add 2 percentage points to the gross domestic product and create about 600,000 jobs.
Meanwhile, in China, consumer price inflation accelerated to the highest level in seven months in December, as the recent cold weather pushed up food prices. Additionally, the merchandise trade surplus widened to $31.6 billion in December, following the $19.63 billion surplus in November.
EUR USD
Last week, the EUR traded 2.10% higher against the USD and closed at 1.3343, after the ECB Chief's positive comments about Euro-zone's economic outlook. Traders piled into the Euro after Mario Draghi indicated that there was "a significant improvement in financial market conditions" in the single currency bloc. Among a long list of positives, Mario Draghi pointed to lower bond yields, higher stock prices, record-low volatility, strong capital inflows into the Euro-zone, a halt of deposit flight in peripheral countries and a reduction of the ECB's balance sheet. The Euro found some support earlier in the week, after the Japanese Finance Minister, Taro Aso stated that the government would purchase bonds issued by European Stability Mechanism in order to help foster financial stability in the region. During the week, the pair traded at a high of 1.3366 and a low of 1.3017. The pair is expected to find its first support at 1.3118, with the next support expected at 1.2893. The first resistance is at 1.3467 and the next at 1.3590.
With a series of Euro-zone economic in the week, including industrial production, trade balance and consumer price index, trading in the pair is expected to be influenced by the resulting cues from these releases.
GBP USD
In the last week, GBP traded 0.41% higher against the USD and closed at 1.6134, after the Bank of England (BoE) left its monetary policy unchanged. The Monetary Policy Committee of the BoE voted at a meeting to leave the benchmark interest rates at 0.50% in January and retained the size of the Quantitative Easing (QE) programme at £375 billion. During the week, the British Chambers of Commerce stated that the UK economy would have a modest recovery this year and business confidence is strengthening. Separately, the UK Prime Minister David Cameron, emphasized importance of Britain's triple-A rating and stated that it was vitally important the government maintained its "credibility for deficit reduction" so it could continue to borrow money at low rates of interest. In economic news, a survey by Lloyds Banking Group's Halifax division showed that the house prices rose for a second month in December and would probably remain little changed in 2013 as the uncertain economic outlook constrains property demand. Additionally, goods trade deficit in the UK narrowed to £9.2 billion in November. The pair traded at a high of 1.6179 and a low of 1.5993 in the previous week. GBPUSD is expected to find its first support at 1.6025, with the next at 1.5916. Resistance exists first at 1.6211, and then at 1.6288.
In the week ahead, investors are likely to remain focused on release of retail sales, producer price index and DCLG house price index in the UK.
USD JPY
The USD traded 1.17% higher against the JPY over the past week, closing at 89.18. The Yen continued to take weaker route against the greenback last week, following the announcement by the Japanese Cabinet of a new stimulus package. Since taking office, the new Japanese Prime Minister, Shinzo Abe has promised dramatic change. On Friday, Shinzo Abe announced a new stimulus program, worth ¥10.3 trillion ($116 billion). The government indicated that the new program would kick-start the languishing Japanese economy and could create up to 600,000 new jobs and would stimulate economic growth. Taking a look at fundamentals, Japanese current account, a key indicator, was a big disappointment. The indicator was well below market expectations. The dismal reading helped to push down the struggling Yen even further. The bank lending rose 1.2%, a slight improvement from the previous reading. Wrapping up the trading week, Economy Watchers Sentiment looked sharp, coming in at 45.8 points. This was much better than the forecast of 45.1. The pair traded at a high of 89.45 and a low of 86.83.
The pair is expected to find its first support at 87.53, with the next support expected at 85.87. The first resistance is at 90.15 and the next at 91.11.
USD CHF
USD traded 1.20% lower against CHF and closed at 0.9136 in the last week. The Swiss Franc rose more than 1% against the US Dollar on Thursday, after the ECB kept interest rates unchanged at 0.75% and as the ECB President, Mario Draghi indicated that a gradual economic recovery would begin this year in the Euro-zone. In Switzerland, the unemployment rate rose to 3.3% in December, from 3.1% in November. Additionally, consumer price index fell 0.2% (MoM) in December, compared to a 0.3% drop in the previous month. On Monday, data from the Swiss National Bank showed that foreign currency reserves declined to CHF427.17 billion in December from CHF427.37 billion the previous month, down for the third successive month. The data is closely watched for indications of how much the bank is spending to defend the 1.20 per euro minimum exchange rate floor put in place in September 2011. During the period, the pair traded at a high of 0.9287 and a low of 0.9111. The first support is at 0.9069, and the next at 0.9002. Resistance exists first at 0.9245, and then at 0.9354.
Trading trends in the pair are expected to be determined by economic release of real retail sales and producer & import prices in Switzerland later in the week.
USD CAD
The Loonie was not left behind from its other commodity currency foes. The interest rate sensitive, oil and gold supported currency managed to print gains during the last week, as the USD fell 0.24% against the CAD, to close at 0.9848. Additionally, a rise in crude oil prices also supported the currency. The economic data from Canada was hardly inspiring, as housing starts slowed in December, while building permits dropped to a ten-month low for November. However, Ivey PMI rose to 52.8 in December, from 47.5 in November. The Loonie reacted most on Friday to November month's trade deficit data, which widened unexpectedly as exports fell. Earlier during the week, the Bank of Canada (BoC) Senior Deputy Governor, Tiff Macklem stated that while growth in the nation's economy is slower than policy makers had expected, expansion would accelerate this year. He also indicated that housing activity is beginning to decline broadly in line with the bank's expectations. USDCAD traded at a high of 0.9885 and a low of 0.9816 in the previous week. The first support is at 0.9814, with the next at 0.9781. The first resistance is at 0.9883, while the next is at 0.9919.
In the week ahead, trading trends in the pair are expected to be determined by release of manufacturing shipments data in Canada. Also today, the BoC is to release its quarterly business outlook survey, a leading indicator of economic health.
AUD USD
AUD traded 0.53% higher against USD in the last week, and closed at 1.0536. The Australian Dollar was pushed higher mainly on Thursday, as Chinese trade figures soared past analysts' expectations, boosting global growth expectations and buoying the risk-linked currency. However, the Australian Dollar came under pressure on Friday after data showed that inflation in China rose faster than expected. Official data showed that consumer price inflation accelerated to a seven-month high of 2.5% in December, up from 2.0% in November and above expectations for a 2.3% increase. The higher-than-expected reading dampened expectations that Beijing would introduce fresh monetary easing measures in the near-term to prop up the world's second largest economy. However, the Aussie was supported after Federal Reserve Bank of Chicago President, Charles Evans said that the US central bank should keep policy accommodative to support the world's biggest economy. During the week, the pair traded at a high of 1.0599 and a low of 1.0468. The first support is at 1.0470 and the next at 1.0403. The first resistance is at 1.0601 and the next at 1.0665.
Investors await release of Westpac consumer confidence index, unemployment rate and consumer inflation expectation data in Australia later in the week.
Gold
In the prior week, Gold traded 0.42% higher against USD and closed at USD1662.79, the first weekly advance in seven weeks, as indications of improving physical demand for the precious metal in China ahead of the country's Lunar New Year supported gains. However, Gold prices fell on Friday, after growing inflation pressure in China dented hopes for more stimulus from the world's second-largest economy. The precious metal slid after data showed China's annual consumer inflation rate quickened to a seven-month high of 2.5% in December. Earlier on Thursday, the shiny metal rallied more than 1%, as the US Dollar came under heavy selling pressure after the European Central Bank kept interest rates unchanged at 0.75% and indicated that a gradual economic recovery would begin this year. The yellow metal traded at a high of 1678.96 and a low of 1643.00 in the previous week.
Gold is expected to find support at 1644.21 and the next at 1625.62. The first resistance is at 1680.17, while the next is at 1697.54.
Crude Oil
Oil prices traded 0.62% higher against USD in the last week and closed at USD93.77. Earlier in the week, oil prices witnessed losses, as speculation that talks between Sudan and South Sudan may lead to the resumption of crude exports, eased supply concerns. Additionally, reports showing a rise in crude oil inventories, further weighed on the prices. The American Petroleum Institute reported, that for the week ended January 4, crude oil supplies rose by 2.4 million barrels. The Energy Information Administration (EIA) reported that crude oil stockpiles climbed 1.3 million barrels to 361.3 million barrels in the same week. Oil rose on Friday, snapping previous losses, after reports showed that Saudi Arabia cut its crude oil production by about 700,000 barrels per day over the last two months of 2012, bringing December output to around 9.0 million barrels per day. Gains were limited on concern that faster than expected inflation in China would limit room for further policy easing to boost growth in the world's second-biggest oil consumer. Oil traded at a high of 94.70 and a low of 92.42 in the previous week.
Disclaimer The analysis we provide is based on the average estimate of price movements in one day. Does not guarantee what we deliver is actually a proper and correct. Everything that happens in the decisions you make on your trading transaction is to be Your responsibilities.
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