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Weekly Forex Update

The greenback ended the week on a stronger footing after monthly consumer prices in the US grew more than anticipated in September, while the new home sales in the nation rose to a 6-year high on a monthly basis in the same month. Meanwhile, investors shrugged off the downbeat October US manufacturing PMI and the weekly unemployment claims data for the week ended October 18. Going forward, market participants will eye this week’s US Fed policy meeting to determine if the central bank winds up its bond buying programme this month.

During the week, the Dallas Fed President, Richard Fisher stated that there was no need for Fed to delay the end of its monthly bond-buying programme, as according to him the world’s largest economy was on “on a strong trajectory” and it would continue to do well.

The Pound remained lower at the end of the week, after the UK monthly retail sales slowed more than expected in September, while public sector borrowing data also disappointed investors. The Pound was further weighed down after the minutes of the BoE’s latest policy meeting showed majority policymakers voting against a hike in the central bank’s benchmark interest rates. However, the GBP gained ground to some extent after UK’s economy continued its expansion trend on a quarterly basis in 3Q 2014, albeit in line with market estimates and further firming the IMF’s prediction that the Britain economy would outscore rest of the developed G-7 economies.

Over the weekend, the BoE’s MPC member, Ian McCafferty stated that the central bank needs to increase its interest rates sooner and in a gradual manner, despite inflation in the UK still being below the BoE’s 2% target.

The Euro ended the week on a lower footing after news emerged that the ECB could possibly begin purchasing corporate bonds as part of its monetary stimulus program to revive the region’s dwindling economy. However, losses in the common currency were muted following encouraging manufacturing and services PMI figures from the Euro-zone in October. The Euro further recovered after the region’s biggest economy, Germany showed an unexpected expansion in its manufacturing activity for October.

Later during the weekend, the ECB’ stress tests showed that most of the European banks were healthy and would be able to withstand any economic slowdown, indicating a better situation for the Euro-bloc.

EUR USD

Last week, the EUR traded 0.71% lower against the USD and closed at 1.2671, after reports came out that the ECB was planning to expand its asset purchase programme by opting for corporate-debt purchases as part of its stimulus program to boost the Euro-zone’s economy. However, losses were limited after the Euro-zone’s manufacturing PMI as well as services PMI reported encouraging readings in October, while manufacturing activity in Germany, the Euro-zone’s biggest economy returned to expansion territory in the same month. During the week, the ECB Vice President, Vitor Constancio, warned that any further decline in the Euro-zone inflation expectations could be extremely harmful; however he assured that the central bank’s accommodative monetary policy would help ensure a safer return to price stability in the region in the medium term. Separately, the ECB Governing Council Member, Ewald Nowotny opined that the recent fall witnessed in the common currency was fuelling growth in the region. During the week, the pair traded at a high of 1.2841 and a low of 1.2614. The pair is expected to find its first support at 1.2576, with the next support expected at 1.2482. The first resistance is at 1.2803, and the next at 1.2936. Looking ahead, investors await the Euro-zone’s as well as Germany’s CPI and unemployment rate data.

Meanwhile, investors would keep a close eye on German IFO economic expectations data for better insights in the nation’s struggling economy.

GBP USD

In the last week, GBP traded marginally lower against the USD and closed at 1.6090, after the UK retail sales dropped more than expected on a monthly basis in September. The Pound ended the week in red as Britain’s economic expansion slowed down to 0.7% on a quarterly basis in 3Q 2014, as growth was impeded by weakness in Europe. Separately, the minutes of the BoE’s latest monetary policy meeting indicated that majority of the policymakers decided to keep the benchmark interest rates unchanged, stoking fears that the BoE may well keep its key interest rate unchanged for a prolonged period, while two MPC members, Martin Weale and Ian McCafferty, continued to vote for an immediate rise in the nation’s interest rate. Meanwhile, downbeat UK public sector net borrowing data kept the Pound under pressure against most of the currencies. The pair traded at a high of 1.6186 and a low of 1.5994 in the previous week. GBPUSD is expected to find its first support at 1.5994, with the next at 1.5898. Resistance exists first at 1.6186, and then at 1.6282.

In the week ahead, market participants would keep a close eye on the UK’s net consumer credit, mortgage approval as well as GfK’s consumer confidence data for further cues.

USD JPY

The USD traded 1.20% higher against the JPY over the past week, closing at 108.16, following upbeat inflation data reported by the US. In economic news, Japan’s manufacturing PMI continued to remain in the expansion territory in October, while the nation’s leading economic index advanced in August. Additionally, the nation’s exports rebounded strongly on an annual basis in September, easing concerns over Japan’s sluggish exports. Separately, the BoJ in its quarterly report reported that most of the Japanese regional economies continued to recover moderately as a trend, as the effect from the sales tax increase in April gradually eased. Last week, the IMF gave Japan the green signal to go ahead with a second sales tax hike next year in order to maintain credibility of the nation’s fiscal framework. The IMF further indicated that it expects the Japanese economy to register a 3.4% annualized growth in the July-September period. The pair traded at a high of 108.37 and a low of 106.25. The pair is expected to find its first support at 106.81, with the next support expected at 105.47. The first resistance is at 108.94, and the next at 109.72.

Going forward, investors keenly await Japan’s retail trade, industrial production, CPI data and the BoJ’s outlook report slated to release this week.

USD CHF

USD traded 0.59% higher against the CHF and closed at 0.9519 in the last week. During the week the Swiss Franc came under pressure after the first poll for opinion regarding the Swiss gold referendum suggested a ‘yes’ vote could be on the cards, thereby indicating that the SNB could be forced to purchase around $60 billion of gold at current spot prices. On the macro front, Switzerland’s trade surplus widened less than expected in September. During the week, the SNB’s Board Member, Fritz Zurbruegg stated that that the Swiss Franc was still “over-valued” and hence the central bank would defend its Cap on the Swiss Franc, while further adding that the central bank would take further measures if required. During the period, the pair traded at a high of 0.9560 and a low of 0.9398. The first support is at 0.9425, and the next at 0.9330. Resistance exists first at 0.9587, and then at 0.9654.

Going forward, investor sentiments would be governed by Swiss UBS consumption as well as KOF leading indicator data scheduled to release this week.

USD CAD

Last week, the USD traded 0.41% lower against the CAD and closed at 1.1231, following disappointing initial jobless claims as well as manufacturing PMI data from the US. The CAD received support after the BoC decided to maintain its interest rates benchmark interest rates steady at 1.0% at par with market estimates. Additionally, the central bank in its statement post its interest rate decision predicted the Canadian economy to grow at a rate of 2.5% in 2015 and gradually ease down to 2% by the end of 2016. Meanwhile, Canada’s monthly retail sales registered an unexpected fall for the second consecutive month in August, marking its biggest fall since December 2013, indicating the nation’s uneven economic growth. USDCAD traded at a high of 1.1298 and a low of 1.1183 in the previous week. The first support is at 1.1177, with the next at 1.1122. The first resistance is at 1.1292, while the next is at 1.1352.

Looking forward, Canada’s GDP data would keep the investors on their toes.

AUD USD

AUD traded 0.56% higher against the USD last week, and closed at 0.8793. The AUD started the week on a higher footing after consumer prices in Australia advanced rose more than expected on a quarterly basis in 3Q 2014. Separately, the RBA’s minutes from its October board meeting revealed that the central bank was not very keen for a hike in its key interest rates and decided to keep it at record low for the foreseeable future. During the week, in a noteworthy comment, the RBA’s Deputy Governor, Philip Lowe, indicated that the nation’s low interest rate policy was appropriate and supported the nation’s economy. However, he expressed concerns over the low global interest rates as it led to a rampant rise in overall asset prices. Elsewhere in China, economy expanded at its lowest pace in more than 5-years, on an annual basis in 3Q 2014 while industrial production in the nation advanced more than expected on an annual basis in September. During the week, the pair traded at a high of 0.8835 and a low of 0.8718. The first support is at 0.8729, and the next at 0.8665. The first resistance is at 0.8846, and the next at 0.8899.

In the week ahead, market participants await Australia’s Roy Morgan weekly consumer confidence and new home sales data for further insights in the nation’s economy.

Gold

In the prior week, Gold traded 0.58% lower against the USD and closed at USD1231.80, as a broad rally in global equity markets along with a rise in the US Dollar weighed on the demand outlook of the yellow metal. Meanwhile, gold prices continued to be under pressure on the back of mounting speculation that the Federal Reserve in its monthly monetary policy meeting scheduled this week would end its bond-buying stimulus programme. Last week, holdings in the SPDR Gold Trust, the world’s top bullion exchange-traded fund fell 2.0% to 745.39 metric tons, its lowest level since late 2008. The yellow metal traded at a high of 1255.60 and a low of 1226.30 in the previous week. Gold is expected to find support at 1220.20 and the next at 1208.60. The first resistance is at 1249.50, while the next is at 1267.20.

In the week ahead, the prices of the yellow metal would be largely affected by the Fed’s decision in its policy meeting starting tomorrow.

Crude Oil

Oil prices traded 2.10% lower against the USD in the last week and closed at USD81.01, as concerns of increasing global supply outpacing demand rose, with OPEC member countries unwilling to slash crude production. Oil prices received some support towards the end of week as reports emerged that Saudi Arabia, world’s biggest oil exporter supplied the international and domestic market with 9.36 million barrels a day of crude oil in September, less than 9.69 million barrels a day supplied in August. Meanwhile, the EIA reported that the US crude oil inventories increased 7.1 million barrels to 377.7 million barrels, against an anticipated gain of 2.7 million barrels in the week ended October 17. Additionally, the API indicated 1.2 million barrel increase in the US crude oil inventories, during the week ended October 17.

Oil traded at a high of 84.05 and a low of 80.05 in the previous week. Oil has its first major support at 79.36, while the next support exists at 77.70. The first resistance is at 83.36, and the next at 85.70.

Weekly Currency Report (27 to 31 October)

EUR/USD	1.2221	1.2488	1.2623	1.2754 (PP)	1.2890	1.3021	1.3288

The euro edged higher against the dollar and the yen in quiet trade on Monday, as financial markets remained calm after last week’s selloff. Data on Friday showed that U.S. consumer sentiment rose to the highest level since July 2007 this month and another report showed that U.S. housing starts rose more than expected in September.

The dollar fell to three week lows against the euro mid-week and weakened against the other major currencies amid fears that slower global growth would act as a drag on the U.S. economy.

In recent months the ECB has cut interest rates to record lows, extended new four-year loans to banks and announced a plan to purchase asset-backed securities, a form of quantitative easing, in a bid to spur growth in the euro area.

Comments by various ECB officials on Friday reiterated the need for governments to implement structural reforms and raise productivity in order to boost growth.

Demand for the yen was hit by speculation that Japan’s pension fund is growing closer to increasing its holdings of stocks and overseas assets, which would drive up demand for foreign currencies.

	EUR/USD	GBP/USD	USD/JPY	AUD/USD	USD/CAD	USD/CHF
R3:	1.2814	1.6204	107.74	0.8829	1.1327	0.9497
R2:	1.2795	1.6178	107.53	0.8809	1.1311	0.9474
R1:	1.2775	1.6156	107.18	0.8790	1.1286	0.9451
S1:	1.2744	1.6134	106.83	0.8772	1.1261	0.9437
S2:	1.2713	1.6108	106.63	0.8752	1.1245	0.9422
S3:	1.2694	1.6082	106.43	0.8732	1.1229	0.9399