Euro & EuroZone News

China recently concluded its one-in-a-decade Communist Party meeting and heralded Xi Jinping on November 15 as the new General Secretary. Xi is widely expected and in line to become the next Chinese President. The top Chinese decision-making body, Politburo, also revealed the new Standing Committee members, with Vice Premier Li Keqiang expected to become Premier Wen Jiabao’s successor.

Meanwhile, after many months of promises of calling for an election, Japan’s Prime Minister Yoshihiko dissolved the parliament’s lower house and called for a change in leadership. A snap election on December 16 will be held and is expected to reveal a massive loss for Noda’s party, based on recent polls.

In the Middle East, Israel launched an attack in Gaza which reportedly killed the Hamas group’s military commander Ahmed Al-Jaabari, prompting Hamas to retaliate and deepen the conflict. Palestinian militants in Gaza purportedly hurled a long-range missile attacks to Tel Aviv. Egyptian Prime Minister Hisham Qandil visited Gaza and called for an international intervention and a peaceful resolution of the conflict.

Stocks and Commodities

Dow, S&P 500, and Nasdaq were all up on Friday on better prospects for an amicable settlement between President Obama and top Republicans and Democrats in dealing with the ‘US fiscal cliff’ scenario. In contrast, European indices all closed in negative territory amid several concerns in and out of the region. The snap election in Japan spurred a three percent rally in the Nikkei 225 Index. Meanwhile, Saudi and Israeli shares fell amid the Israel-Hamas conflict in Gaza. Saudi Arabia’s Tadawul Index fell to its lowest in nearly a month.

In the commodities front, Soybeans fell as China, cancelled 600,000 metric tons of purchase, a substantial purchase quantity from the biggest consumer of soybeans. Corn and wheat also slipped, with wheat posting its biggest decline since late 2011. Notably, the United States was the largest shipper of these three commodities in 2011. The US Energy Department said US crude stockpiles gained by 1.09 million barrels, while oil output rose for a 10th week, its largest since May 1994.

Oil is in danger of making an upside comeback if the Israel-Gaza conflict continues to escalate. Investors are concerned that the tension could disrupt Middle Eastern oil supplies. Meanwhile, gold remained quiet after posting a $60 upside move last week. Gold encroached itself in a tight $30 range all throughout this week while the $1,700 level retained support from buyers. A move beyond $1,800 and $1,700 is needed to attract fresh buyers and sellers.

Currencies

EURUSD stopped 30 pips short from erasing this week’s gains, closing at 1.2740. Buyers need to immediately regain their place between 1.2800 and 1.2900 to gain traction for another attempt at the 1.3000s. Otherwise, we could see the mid-1.2000’s before November ends.

Unlike EURUSD, GBPUSD succumbed to Dollar pressure and failed to end the week with a foothold above the weekly open. Even the gains for the last two days were not enough to put this pair in positive territory for the week. 1.6000 remains an important level for traders and we expect another tug-of-war when that area is revisited. In the near term, price needs to recapture 1.6100/1.6200 to erase the downside momentum which emanated from late-September.

Dollar bulls were unable to force USDJPY below the 79.00 level for the entire month of November. The result was an impressive 225-pip upmove printed this week, its largest weekly range in about a year. The 84.00 – 86.00 area is the next target and bulls can achieve this even before the month ends.

AUDUSD was evidently weak since the week opened, failing to take minor upside resistance at 1.0450 for the first two days. This attractive bearish momentum to take over, plunging the pair with three consecutive downdays until Friday. A solid breach of 1.0600 would end the current consolidation.

The Week Ahead

The coming week will be relatively busy, as each day is dotted with several key economic releases. On Monday, the market will look at New Zealand PPI, German Bundesbank President Jens Weidmann’s speech, and US Existing Home Sales; On Tuesday, Australia’s Monetary Policy Meeting Minutes, Reserve Bank of Australia’s Stevens’ speech, China’s Foreign Direct Investment, Japan’s Interest Rate announcement and Monetary Policy Statement, Bank of Japan press conference,  Eurogroup meetings, US Building Permits, and US Fed Chairman Bernanke’s speech; Japan’s Trade Balance, UK’s Public Sector Net Borrowing and MPC Minutes, and US Unemployment Claims on Wednesday; China’s HSBC Flash Manufacturing PMI, France’s and Germany’s Manufacturing PMI, Canada’s Retail Sales, and Day 1 of the 2-day EU Economic Summit on Thursday; Germany’s Ifo Business Climate, and Day 2 of the 2-day EU Economic Summit, and Canada CPI data on Friday.

US and Japan will celebrate Thanksgiving Day on November 22 and 23, respectively.

The US has been the focus of events this week with both Obama’s reelection and Hurricane Sandy’s long term impact on the US Northeast.

President Barack Obama has been re-elected for his second term when Americans took to the voting precincts last November 6 to vote on the US Presidential, Senate, and House of Representatives elections. Obama defeated his Republican contender Mitt Romney.

The electoral tally showed Obama won 303 electoral votes, while challenger Mitt Romney earned 206 electoral votes. Meanwhile, Democrats retained control of the Senate, while the republicans hold control of House of Representatives. Obama will be inaugurated for his second term as President on January 21 next year.

In other news, the American Northeast is still suffering after Hurricane Sandy wreaked havoc the other week. Sandy caused flooding and devastated homes, businesses, and buildings, and left the majority without power, water, and phone service. Recent reports show as much as 100,000 businesses and homes will possibly endure a few months with no power until major restorations are facilitated. According to the US Energy Department, more than 400,000 homes and businesses, mostly in New Jersey and New York, still have no power. A nor’easter wind, rain, and snow storm followed recently which aggravated the situation and prevented utility crews from making repairs and power and utility restoration.

Markets Reaction to the Events

The week passed by without any unusual fuss as Obama’s re-election meant status quo for the markets. However, the key economic data released this week created significant volatility for the markets.

German bonds climbed for a third week on concerns that European slowdown is worsening and spreading to other European economies. UK gilts also rose for the third week on speculation that the Bank of England will increase bond purchases to continue spurring economic growth.

Asian, Europe, and US stocks fell as investors turn to concerns about an impending US ‘fiscal cliff’ as the yearend nears. Bush-imposed tax cuts will expire by December 31 and the “fiscal cliff” scenario heralds tax hikes and spending cuts, affecting Americans in the process.

The volatility led mainly by the US elections also affected oil, with price having spiked up and down by $5 total on election day and the next. Oil closed the week nearly $2 higher from the weekly open at $86.06. Meanwhile, the quick $42 drop last week did not prevent gold from making a comeback and ending the week in spectacular fashion. Gold traded higher for four consecutive days and closed the week at $1,730.

Currencies

It was a week rich in volatility for the currency market, thanks to a raft of key economic data releases and the recently-concluded US elections.

After touching 80.67 the other week, USDJPY made a relentless move to the downside this week, taking out stops and stopping six pips short from breaking the 79.00 level. This pair is in a precarious situation and 79.00 should hold to prevent a collapse towards the 77.00 area.

Meanwhile, GBPUSD and EURUSD are also in dangerous territories as Dollar strength zapped the bulls to end the week. GBPUSD spent most of the week within a 50-pip range from 1.5950 and 1.6000. Attempts to breach each side were easily rebuffed, and the week closed by finally breaking this range to the downside, closing at 1.5893.

EURUSD is also in a terrible position after closing three consecutive days below the 200-day average. The pair made a brief foray to the upper-1.2600’s but closed the week at 1.2709.

Bucking the trend, AUDUSD held up relatively well this week. Compared to EURUSD and GBPUSD, this pair ended the week at a better price, and is still poised to move higher if 1.0300 does not give way to dollar strength.

The Week Ahead

The coming week is relatively average in terms of economic news, with most of the key economic data releases concentrated on Wednesday and Thursday. The market will be looking forward to the Eurogroup meetings on Monday; UK CPI and BOE Inflation Letter, and Germany’s ZEW Economic Sentiment on Tuesday; New Zealand’s Core Retail Sales, UK’s Claimant Count Change, BOE Inflation Report, and BOE Governor King’s speech; and US Retail Sales, PPI, FOMC Meeting Minutes on Wednesday; UK Retail Sales, US CPI, Unemployment Claims, Philly Fed Manufacturing Index, and Bernanke’s speech; and finally, US TIC Long-Term Purchase and Industrial Production on Friday.

An extraordinary week greeted the market as Hurricane Sandy wreaked havoc on the American Northeast this week, leaving 8.5 million people with devastated homes, infrastructures, and businesses, and majority with no power, heat, water, and phone service.

Financial markets were not affected, thanks to measures imposed as early as the prior week. This week ended on a better footing as the market welcomed a better-than-expected US employment data on Friday. According to authorities, the US labor market added 171,000 jobs, almost 50,000 more than analysts’ consensus estimates. Unemployment rate stayed at 7.9 percent, compared to Canada’s 7.4 percent unemployment rate which was reported at the same time.

Stocks, Bonds, and Commodities

The US made history this week as Hurricane Sandy battered the US East Coast, particularly New York City, forcing the most prolonged shutdown of US stock trading in 124 years. New York City, the world’s biggest financial market and home to nearly 170,000 workers employed in the securities industry, halted trading for 48 hours on October 29 and 30 when the Hurricane hit. Floods and power outages ripped through New York, New Jersey, and nearby areas, but no unfavorable incident transpired in the financial market. Bond trading was also halted during that time.

According to Bloomberg data, quarterly results released by 71 companies beat analysts’ estimates, giving S&P 500 a 0.2 percent gain this three-day trading week. Meanwhile, Dow and Nasdaq fell slightly over one percent on Friday. Most of Europe and Asia were favorably buoyed this week. Japan’s Nikkei reached a one-week high on US recovery hopes.

Gold fell two percent to its two-month low of after the release of the better-than-forecast US Non-Farm Payrolls data. Oil dropped to its lowest in nearly four months on concerns that Hurricane Sandy-led shutdowns of oil refineries in the US East Coast aided in increasing the supplies.

Currencies

It was another tepid trading week for currencies, mimicking the moves in the stock market.

EURUSD maintained its consolidating tone with a bearish bias. 1.2800 is an important area for the bulls to maintain; else market can expect a move towards 1.2400 to 1.2700 next week. Meanwhile, GBPUSD needs to sustain its hold of the 1.5900 to 1.6000 area if buyers are planning another visit to the 1.6300 highs reached in late September.

For AUDUSD, trading was also lackluster, ending the week with just a 90-pip trading range. The slow and weak upmove created by AUDUSD in the first four days of the week was quickly erased on Friday, ending the week at 1.0334, 30 pips lower than the weekly open.

The Week Ahead

Now that the US non-farm payroll week is behind us, the market will be eagerly looking forward to the US Presidential and Congressional Elections this coming week. Aside from these, the market will set its sights on the first day of two-day G20 meetings, Australia’s Retail Sales and Trade Balance, Spain’s Unemployment, UK’s Services PMI, Canada’s Building Permits, and the US ISM Non-Manufacturing MPI data on Monday; On Tuesday, Australia’s rate announcement and statement, UK’s Manufacturing Production, and Canada’s Ivey PMI

data; On Wednesday, New Zealand central bank’s Financial Stability Report, Switzerland’s

Currency Reserves and CPI; On Thursday, New Zealand and Australia’s Employment data,

Eurogroup meetings, UK and Europe’s rate announcement, UK’s Policy Rate Statement, and ECB’s press conference, US and Canada’s trade balance, and US Unemployment Claims; and lastly on Friday, Australia’s RBA Monetary Policy Statement, China’s CPI and PPI, and US preliminary University of Michigan’s Consumer Sentiment data.

Daylight Saving Time or DST will take effect in Canada and the US starting this week.

Amid all the cornucopia of high-level talks this week, including the Eurogroup, ECOFIN, G7, and IMF meetings, not much of what has been said surprised the markets.

Authorities exchanged rhetoric about the ailing global economy and how it can be addressed. Notable highlights were the discussions in the three-day IMF meeting where officials from around the world gathered to discuss the prevailing Eurozone issues. Current tensions surrounding an island dispute between China and Japan led a top Chinese delegate to pull out of the IMF meeting. IMF cut its world GDP forecast, citing further risks ahead including risks to the safe-haven status of Japan and the US, the world’s two biggest economies.

Early Thursday, Standard & Poor’s slashed Spain’s debt rating to BBB-minus, one notch above non-investment grade, increasing concerns that the ailing nation will proceed with a bailout request. A Spanish official told reporters that Spain will decide on bailout at an “appropriate time.”

Stocks, Bonds, and Commodities

The Asian stock market was relatively mixed, with top gainers on Friday being indices of Hong Kong, Philippines, Indonesia, and Singapore. Unlike Asia, Europe and the US stock markets were generally weak, with only the Dow being able to eke out a slight gain among the three main US indices.

As stocks slump, US treasuries and 10-year UK Gilts rose on lingering signs of economic slowdown on both sides of the Atlantic. US Treasuries ended the week with a four-day gain as the Federal Reserve purchased $1.889 billion worth of 30-year bonds, in keeping with its plan to keep borrowing rates low. For a second week, Spain’s 10-year bonds gained after the S&P debt rating cut.

In the commodities front, oil fell as the International Energy Agency cut its forecast for worldwide oil demand on continued concerns about slowing economic growth. IEA said that Iranian oil exports would likely remain depressed in the next few years.

Copper posted its biggest weekly decline in three months. Concerns about weakening demand linger as purchases of scrap copper has been slowing and China economic concerns continue to mount. Meanwhile, corn and soybeans experienced declines as demand for supplies weaken. United States is the largest exporter and grower of corn and soybeans.

Currencies

EURUSD moved within a 200-pip range throughout the week. The weekly open and the 1.3000 figure were never reached since the pair plunged from the start of Monday trading. The weakness in EURUSD and its inability to rise above 1.3000 could signify that further range trading is ahead, perhaps for the entire October.

Compared to EURUSD, GBPUSD performed a steady drop of nearly 170 pips since Monday. It was also unable to breach the nearest round number figure (1.6100). Meanwhile, AUDUSD bucked the trend and made a gradual 140-pip rise throughout the week. Since the attempt of breaking the 1.0300 figure ended in failure, it fell 70 pips and closed mid-range at 1.0230. Commodity price gains helped in AUDUSD’s rise.

In a recent speech, SNB Chairman Jordan told reporters that the “financial market sentiment has improved and reduced pressure on the Franc.” Having said this, he still views the Swiss currency as being “overvalued” and reaffirmed that the SNB “will continue to defend this minimum exchange rate with the utmost determination.” USDCHF closed the week at 0.9334.

The Week Ahead

October is rolling out another busy week ahead. Early Monday, China will release its CPI and PPI data. During the North American session, the market will look at US Retail Sales and Canada’s BOC Business Outlook Survey. For the rest of the week, New Zealand’s CPI, Australia’s Monetary Policy Meeting Minutes, UK’s CPI, PPI, BOE Inflation Letter, Germany’s ZEW Economic Sentiment, and US CPI data are out on Tuesday; UK Claimant Count Change and MPC Meeting Minutes and the highly-anticipated China GDP data on Wednesday; Thursday sees day 1 of a two-day EU Economic Summit, UK Retail Sales, Spanish 10-year bond auction, US Unemployment Claims and Philly Fed manufacturing Index; and finally, Friday data releases include UK Public Sector Net Borrowing, Canada CPI, and US Existing Home Sales.

The market welcomed a very busy first week of October, with the widely-followed US Non-Farm Payroll data highlighting the week with renewed hope for the global economy.

The week was news-packed as expected. Aside from the regular economic data releases, several central banks made rate announcements and policy statements. Australia’s RBA slashed its cash rate by 25 basis points to 3.25 percent, while BOJ, BOE, and ECB kept their rates steady at 0.10 percent, 0.50 percent, and 0.75 percent, respectively. BOJ cut their economic assessment and announced nothing new in terms of monetary policy. In a press conference following the ECB rate decision, Mario Draghi reassured the market on Thursday that the ECB is prepared to purchase bonds of troubled Eurozone nations once necessary conditions are met.

The week ended with a surprising drop in the September US unemployment rate, falling below the 8 percent mark for the first time since February 2009. US jobless rate declined to 7.8 percent, while 114,000 jobs were reportedly added in the labor market.

Meanwhile, neighboring Canada’s September employment data reportedly increased more than five times that of expectations. According to Statistics Canada’s labor force increased by 52,100 in September, following a decent gain of 34,300 last August.

Stocks, Bonds, and Commodities

Market developments on Thursday and Friday dominated the bond and stock markets this week. German bonds and Spanish 10-year yields fell on Draghi’s comments. Canadian government bonds slid for the first time in three weeks, following the better-than-expected employment report. Asia, Europe, and the US stock markets all posted decent gains.

Meanwhile, the 50-stock gauge Nifty index in India made a surprising 16 percent drop in just eight seconds on Friday trading. The National Stock Exchange of India said the brokerage firm Emkay Financial Services mishandled orders which led to the substantial but fleeting drop in the index. Trading in the Nifty was halted for 15 minutes, while Indian Finance Minister Palaniappan Chidambaram promised they will investigate the stock drop. “I am assured that there is no systemic risk,” he told reporters.

For commodities, gold and silver reached their highest since November and March, respectively. Gold inched close to $1,800 on views that the stimulus measure from Japan, Europe, and US will continue to spark the interest in the yellow metal.

Currencies

Currencies were generally quiet for the first half of the week. EURUSD made most of its move on Thursday and Friday, gaining 263 pips and ending near the high of the week. In contrast, AUDUSD ended the week 180 pips lower, while GBPUSD was nearly unchanged.

The much-better-than-expected employment data out of Canada on Friday spurred a rare 60-pip drop in USDCAD in one hour. Other CAD crosses followed with much bigger moves. Given the economic disparity between US and Canada, USDCAD is poised to dive even further. A break of 0.9600 will increase likelihood of price heading towards the 0.9400 lows reached in mid-2011. USDCAD closed around 60 pips below its weekly open at 0.9783.

The Week Ahead

The market will have another busy week ahead, with particular focus on data such as Japan’s Current Account report to be released on Monday; US 10-year bond auction and Beige Book on Wednesday; Australia employment data, Canada Trade Balance, US Trade Balance and Unemployment Claims on Thursday; and US PPI and University of Michigan Consumer Sentiment on Friday. High-level talks also dot the entire week, including speeches from ECB’s Draghi, SNB Chairman Jordan, BOJ’s Shirakawa, US FOMC Members Tarullo, Yellen, Stein, and Lacker; as well as Eurogroup meetings on Monday, ECOFIN meetings on Tuesday, G7 meetings on Wednesday, and the IMF 3-day meeting starting on Thursday.

“The market is never a one-way street”, and this saying rings true for this week as the market euphoria fades, at least for now. After climbing for several weeks, reality has finally set in and the market seems ready to face the current economic issues again.

Slowing global economic growth was front and center, overshadowing the stimulus announcements of the US Fed and ECB in the previous weeks. Dovish minutes from the Reserve Bank of Australia, weak data from China, and surprise QE (Quantitative easing) from BOJ all furnished a risk-off view to the markets. Bank of Japan widened the asset purchase program from 45Tln Yen to 55Tln Yen and expressed that there is “a pause in Japan’s recovery due to overseas slowdown.” In Europe, Spanish Prime Minister Mariano Rajoy considered seeking external aid for the ailing nation after the ECB pledged to buy bonds in unlimited quantities.

Stocks, Bonds, and commodities

After rising to its strongest level since December 2007, S&P500 fell for the week, snapping a two-week rise. Commodity and financial stocks were most affected, as global growth concerns led investors to pare their holdings. S&P 500 fell 0.4 percent this week, but is currently 16% better for the entire 2012. Meanwhile, Dow Jones fell almost 14 points to 13,579.47. European stocks were little changed, and Asian stocks halted its two-week gain.

Treasuries recovered part of the losses it incurred last week when the US Fed declared more stimulus and low rates will remain until 2015. Treasuries climbed for the very first week this September as manufacturing data from New York and Philadelphia slowed, with the latter showing a fifth straight month of contraction. Weak PMI data for China and Eurozone manufacturing also aided the rise in Treasuries, as well as German bunds. For its part, Spanish bonds climbed on concerns the nation would look for international aid.

Gold held inside a tight $36 range for the entire week and closed nearly unchanged. Oil maintained a bullish tone on speculation central bank stimulus will help revive the slowing world economy.

Currencies

EURUSD started the week making a momentary breach of last week’s high, followed by a gradual 250-pip decline, ending near the weekly low at 1.2979. The market will be keeping a close watch of 1.2900 and 1.3000. 1.2918 was the low for this week.

For AUDUSD, the move down started earnestly from Monday, making a 190-pip decline, and closing down nearly 1% for the week. Meanwhile, GBPUSD bucked the trend and ended up nearly unchanged. GBPUSD climbed for a seventh week and to its best level in more than 12 months. GBP’s rise against EUR for the first time in about six weeks also contributed to GBPUSD’s resilience.

The Week Ahead

Unlike the previous weeks, next week is relatively light in terms of economic data. The market will look at Canada’s Retail Sales and GDP; Germany’s Ifo; New Zealand’s NBNZ Business Confidence; and Pending Home Sales, New Home Sales, and Unemployment Claims from the US. The market will also be keen to hear speeches of ECBs Draghi, SNB Chairman Jordan, and Bank of Canada’s Governor Carney.

Another milestone week for the markets as the US Federal Reserve pledged a follow through with stimulus measures to boost economic growth, further alleviating concerns of a downward spiral of the global economy.

The main Economic Event – The Federal Reserve Announcement

On Thursday, Federal Reserve Chairman Bernanke unveiled stimulus measures to help boost the US economy and combat the stubborn unemployment rate which continued to hover at the eight percent mark. In its third round of quantitative easing or QE3, the Fed pledged that it will boost its long-term bond holdings by purchasing around $40 billion worth of mortgage securities every month. It is worth noting that the Fed bought more than $2 trillion worth of bonds in the first two rounds of QE from late-2008 to mid-2011. ECB announced its own unlimited bond-buying plan last September 6.

Stocks

These recent developments prompted investors to move away from bonds and into stocks, commodities, and high-yielding currencies.

With a cemented risk-on sentiment, another green week ensued for the stock markets around the world.

In Asia, region-wide gains were led by more than two percent increase in the indices of Sri Lanka, Indonesia, India (Sensex and Nifty), Korea, Taiwan, and Hong Kong. Majority of the remaining indices inked more than one percent gains.

In Europe, the main indices of UK, Germany, France, Switzerland, Italy, and Spain were all up. Bucking the overall trend were a few indices, with top losers being the Egypt and Cyprus indices shedding a little over one percent and 4.70 percent, respectively. Like several beleaguered Eurozone nations, Cyprus is seeking international financial aid. Meanwhile, Egypt is experiencing civilian unrest sparked by a film that purportedly insults the Prophet Mohammad.

The main US indices of DJIA, S&P500, and Nasdaq posted healthy gains as well, with S&P500 boosted to its best level since 2007.

Commodities

On the commodities front, aluminum, lead, nickel, gold, oil, and platinum all posted strong gains. Oil rose to its highest in about four months, with talks of WTI crude breaching the $100 mark anytime soon. Aside from the risk-on sentiment, tensions in the Middle East, with reported demonstrations in Egypt, Tunisia, Iran, Sudan, and Yemen, are sparking oil supply concerns.

Currencies

The major currencies started the week slightly down before launching a four-day winning streak, particularly EURUSD, CHFUSD, GBPUSD, and AUDUSD. EURUSD and USDJPY ended up more than one percent higher, while EURJPY closed two percent better. EURUSD rose as high as 1.4 percent to 1.3168, a level last seen in May 4. Meanwhile, USDJPY made a Friday 90-pip bounce after sliding all week.

Next Week’s Projections

Moving forward, the market will be busy with key economic data and developments spread throughout the coming week. Investors will pay particular attention to Australia’s RBA policy meeting minutes, German ZEW economic sentiment data, Bank of England’s inflation letter, Japan’s BOJ press conference, and central bank member speeches from the ECB and Fed.

August ended with a bang and September has so far continued with the fireworks and risk-on sentiment, amid speculation of more Federal Reserve stimulus and announcement of bond buying plan by the European Central Bank.

ECB to Purchase Government Bonds

European Central Bank’s Mario Draghi told reporters at his monthly news conference at Frankfurt that the ECB is ready to purchase unlimited amounts of government bonds to help ailing European economies, while reiterating the need for participating countries to work under strict conditions. Draghi unveiled a new program, called Outright Monetary Transactions, or OMTs, which according to him “will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro.”

US Labor Data

The US Labor Department data presented on Friday showed that the US economy had an increase of fewer-than-forecast 96,000 jobs in August, down from a revised 141,000 jobs gained in July. The report also showed that 368,000 Americans left the labor force and working-age population’s share within the labor force has shrunk to its lowest since 1981. These worse-than expected figures spur speculation that the Federal Reserve will proceed with its stimulus measures or QE3.

Markets Reaction

Asian stock markets cheered Draghi’s plans. Japan’s Nikkei, Hong Kong’s Hang Seng, and China’s Shenzhen CSI were up more than two, three, and four percent respectively.

European stocks clinched its biggest weekly gain in three months, with all of the 18 western European indices climbing this week. UK’s FTSE rose 1.5 percent, Germany’s DAX climbed 3.5 percent, and France’s CAC climbed 3.1 percent. Notably, Spain’s IBEX and Italy’s FTSE MIB rallied 6.2 and 6.7 percent, respectively. ECB’s bond buying program is expected to significantly help in the liquidity issues surrounding Spain and Italy.

Standard & Poor’s 500 Index, Nasdaq, and Dow all closed higher for the week. S&P 500 reached its highest level since January 2008, while Dow made its highest close since late 2007.

Commodities like gold, oil, copper, and silver all closed the week higher.

Forex Markets Reaction

Draghi’s speech made a significant impact on currencies as well.

Asian currencies closed higher for a third week, with Taiwan Dollar climbing to a two-month high and the Philippine Peso achieving its best week in nearly three months.

Major currencies started the week off drifting down, then stalling and reversing by mid-week, and eventually ended it off the highs.

EURUSD maintained its prominence and bullish tone, drifting on either side of 1.2500 for the first two days, after which it staged a 300-pip ascent towards 1.2800. EURUSD closed nearly one and a half percent at 1.2814.

AUDUSD made an equally impressive rally mid-week, and closed Friday nearly one percent higher at 1.0382. Meanwhile, GBPUSD charged 200 pips higher, closing above 1.6000, a price last seen in mid-May.

Next Week’s Forecast

For next week, the market will certainly keep a close eye mid-week on statements by the central banks of New Zealand (interest rate decision), Switzerland, and the US.

The month of August has left with a bang, with Friday ending with the week’s key event – the much-awaited speech by Federal Reserve Chairman Bernanke on Jackson Hole, Wyoming.

The Asian markets’ Friday close were mostly negative, with only the indices of Singapore, the Philippines, and Indonesia managing to end in positive territory. Japan’s Nikkei lost more than one percent, while the rest lost less than one percent. Notably, Nikkei ended the week down but it is up 1.7 percent for August, its best August performance in six years.

Bernanke’s 24-page speech revealed the Fed will continue its monetary policy accommodation to reduce US unemployment and spur economic growth. “The Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” Bernanke told central bankers and economists in the annual economic-policy symposium in Jackson Hole.

Commodities, Stocks, Currencies react to Bernanke Speech

Commodities welcomed Bernanke’s remarks. Gold moved to its highest since April, while oil seized its biggest monthly gain in 11 months.

Bernanke’s speech also lifted equity investor sentiment. Dow Jones, S&P 500, Nasdaq, and all indices in Europe were positive with the exception of UK’s FTSE100.

On the currency front, EURUSD was one of the main beneficiaries of the risk-on effect of Bernanke’s remarks. The currency pair pierced through 1.2600 for the first time since early July, closing the week at 1.2577. Bulls need to contend with 1.2750 next; a substantial move above will create more steam for a push towards 1.2800, and perhaps 1.3000. On the downside, 1.2500 should hold as strong support to maintain the current bullish bias.

After a brief foray above 79.00, USDJPY has gone back to its tight 100-pip range which started in late July.

Meanwhile, GBPUSD is ending the month of August around 200 pips higher at 1.5863, after a brief breach of 1.5900. Economic data pointed to a deepening recession in the UK, bolstering speculation that BOE might need to prolong the use of monetary stimulus measures to prop up the ailing economy.

For its part, AUDUSD ended the month at a five-week low, closing at 1.0319. AUDUSD showed a relatively steady decline after touching 1.0600 in early August. Lingering concerns about slowdown in China, its largest trading partner, is putting pressure on the currency.

Friday’s data showed China’s manufacturing surprisingly contracted. Manufacturing orders dropped and output rise was at a much slower pace. This is the first time China’s manufacturing contracted in nine months. China’s economic activity is drastically affected by the unprecedented unemployment rate in the Eurozone and high jobless rate in the US.

The Week Ahead

Although the US will have its Labor day holiday on September 3, the week is fully packed and the market will focus on speeches of ECB’s Draghi and BOJ Governor Shirakawa; US ISM Manufacturing data; Employment and Unemployment data from Australia, US, and Canada; and interest rate decisions and statements of Reserve Bank of Australia, Bank of Canada, Bank of England, and European Central Bank.