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Currency Trends & Insights

EURUSD

US Fed Tapers Bond Buying by $10B

After a fairly long wait, the US Federal Reserve finally decided to start tapering, according to the latest FOMC statement released on Wednesday. The Fed decided to taper QE by $10 billion – $5 billion from mortgage-backed securities and another $5 billion from Treasuries. The interest rate was also held at 0-0.25 percent. Fed Chairman Bernanke said that the end of QE “certainly” would not happen at mid-2014. He also sees improved labor market conditions next year. Meanwhile, Fed officials also see better growth next year – they raised their growth forecast for 2014 from 2.8 percent-3.1 percent to 2.9 percent-3.2 percent and also cut the unemployment rate forecast to 6.3 percent from 6.6 percent.

In other news, US Existing Home Sales surprisingly decreased this November. Sales reached 4.90 million after posting 5.12 million sales last October. The Philly Fed Manufacturing Index also surprised with a weaker-than-expected 7.0 December reading.

In the UK, MPC Asset Purchase Facility and Official Bank Rate votes remained unchanged (0-0-9 votes, with 9 votes in favor of holding or status quo). Meanwhile, the Unemployment Rate has improved to 7.4 percent from 7.6 percent.

In Europe, the ZEW Economic Sentiment for Germany and the Euro-area jumped to 62.0 and 68.3, much better than expected (Germany’s latest ZEW figure is a seven-year high).

Commodities

Gold reached fresh 24-week lows after breaking the key $1,200 level. Despite this, the yellow metal managed to close the week just above this level. The more than 3-year low set last June 23 at $1,180 is in serious risk of getting run over soon. Bulls must protect $1,200.

After a weekly pause, Oil made a comeback this week and even created a new 8-week high last Thursday. Buyers must contend with potential sellers around $100-$102 before price can advance toward $104-$105.

Currency Pairs

EURUSD has been dragged 185 pips lower this week after encountering issues pushing through 1.3800 the prior week. Nevertheless, this pair is set to close the year with a bullish tone. Next major resistance into the brand new year would be the 1.4000 level.

GBPUSD refuses to make progress as it has now made its third weekly rejection at the 1.6400 level. With the plunge close to the 1.4800 level, GBPUSD is virtually unchanged this year. If the bullish momentum continues, this pair is on track to move toward 1.6500-1.700 next year.

With 8 straight weeks of pure upside culminating in a new yearly high and 61-month high, USDJPY is poised to keep chugging along and attempt for a move toward 110-120 next year.

The Week Ahead

As Christmas and the New Year are coming soon, this will be the lightest week in December in terms of data release.

Monday is light with a few economic releases such as Canada’s Gross Domestic Product; US PCE Price Index, Personal Income, Personal Spending, and Revised University of Michigan Consumer Sentiment. Japanese banks are closed to celebrate the Emperor’s birthday.

On Tuesday, there will be Bank of Japan’s Monthly Report; France’s Consumer Spending; UK BBA Mortgage Approvals; US Durable Goods Orders and New Home Sales.

The market will be virtually closed on Wednesday (Christmas Day) and Thursday, except for BOJ’s Monetary Policy Meeting minutes and US Jobless Claims which are to be released on Thursday.

On Friday, Japan will dominate with the release of Household Spending, Tokyo Core CPI, Jobless Rate, Preliminary Industrial Production, Retail Sales, and Average Cash Earnings.

New Zealand & Switzerland Interest Rates Unchanged

Following four central bank announcements last week, the Reserve Bank of New Zealand and Swiss National Bank followed up this week and they also maintained their rates. RBNZ kept its Official Cash Rate at 2.50 percent, while the SNB left its Libor Rate at less than 0.25 percent.

Meanwhile, Reserve Bank of Australia Governor Stevens seems to be in favor of seeing the local dollar somewhere in the $80 cent level. In his interview with the Australian Financial Review, he said “…I just think that if things over the medium term evolve as we’re presently assuming – and I think it’s reasonable to make these assumptions – it’s going to be surprising if a nine at the front is the right number.”

In other news, China released some robust numbers last Tuesday. Fixed Asset Investment remained high at 19.9 percent, while Retail Sales edged up 13.7 percent year-on-year in November. Industrial Production for November rose 10 percent, the National Bureau of Statistics reported.

Employment Change in Australia surprisingly jumped 21,000 in November, with participation rate stable at 64.8 percent, according to the Australian Bureau of Statistics.

In the United States, the latest report from the Department of Labor showed the Jobless Claims rose to 368,000, its weakest level since early October.

Commodities

Despite the downside bias, Gold went on to chop around just above the $1,200 level for the third straight week. Price showed signs of bearish defiance as it tried to jump through the $1,260s, but sellers quelled the move easily. Nonetheless, the move was enough to create a bullish close for the week, and this could indicate that price could attempt another upside attack in the coming weeks.

Oil had a limited range of action this week, managing a brief foray into the $98s before sliding to a weekly low and close in the mid-$96s. Bulls are expected to remain supportive of any declines to the $92-$95 area.

Currency Pairs

EURUSD saw a move higher for its fifth bullish weekly close, but it failed to take out the October high at 1.3831 in the process. The pair struggled to support the move through 1.3800 despite constant attempts on Wednesday and Thursday. Anyway, as long as 1.3700 holds, we expect another shot or two at 1.3800 in the coming week.

GBPUSD kicked off its week with an early scurry, reaching a new high (1.6464) before easing off for the rest of the week, giving it its second consecutive bearish weekly close. This is a worrying sign that could mean a potential move through the 1.6200 is in the offing.

USDJPY sported another action-packed week which pretty much replicated the price action in the prior week. A second week of volatility-spiced activity saw the pair challenge the downside in the beginning of the week, followed by a squeeze toward new highs. 104.00 has not been reached but nevertheless we could see at least a brief visit to that area in the days to come.

The Week Ahead

As the year draws to a close, this will be the final busy week for December.

Monday begins very early with New Zealand’s Westpac Consumer Sentiment, followed a few hours later by Japan’s Tankan indices; China’s HSBC Flash Manufacturing PMI; Flash Manufacturing PMI and Flash Services PMI for France, Germany, and the Eurozone; Bundesbank Monthly Report; Canada’s Foreign Securities Purchases; US Empire State Manufacturing Index, Flash Manufacturing PMI, TIC Long-Term Purchases, and Industrial Production.

On Tuesday, there will be Australia’s CB Leading Index, Monetary Policy Meeting Minutes, and New Motor Vehicle Sales; UK PPI input, RPI, and CPI; Germany’s ZEW Economic Sentiment; Eurozone CPI and ZEW Economic Sentiment; US Current Account, CPI, and NAHB Housing Market Index.

Wednesday will start early again with New Zealand’s Current Account. Japan’s Trade Balance will follow, then ANZ Business Confidence; Germany’s Ifo Business Climate; UK Claimant Count Change, Jobless Rate, and MPC Asset Purchase Facility and Official Bank Rate Votes; Switzerland’s ZEW Economic Expectations; UK CBI Realized Sales; US Housing Starts, Building Permits, FOMC Economic Projections, FOMC Statement, and US Federal Funds Rate.

Thursday kicks off with New Zealand’s GDP; Eurozone Current Account; UK Retail Sales; US Jobless Claims, Existing Home Sales, and Philly Fed Manufacturing Index.

Friday will end the week with a flurry of news release such as BOJ’s Monetary Policy Statement; Germany’s PPI and Gfk Consumer Climate; UK Final GDP, Current Account, and Public Sector Net Borrowing; Canada CPI and Retail Sales; US Final GDP.

Four Central Banks Maintain Rates; US Jobless Rate Improve

Central bank announcements dotted most of the week and all these central banks decided to maintain their respective rates. To wit, the Reserve Bank of Australia left its Cash Rate at 2.50 percent; Bank of Canada left its Overnight Rate at 1 percent; Bank of England maintained its Official Bank Rate at 0.50 percent; and the European Central Bank decided to keep its Minimum Bid Rate at 0.25 percent.

In the United States, Non-Farm Employment Change and Unemployment Rate manifested positive surprises: the former increased 203,000 and the latter improved to 7 percent. Jobless Claims came in below 300,000 for the first time in 12 months, posting 298,000 last week. ISM Manufacturing PMI rose to 58.4 but ISM Non-Manufacturing PMI eased to 53.9. Preliminary University of Michigan Consumer Sentiment soared to 82.5 after posting a revised 75.1 reading last October. Meanwhile, New Home Sales increased 25.4 percent to an annualized pace of 444,000 in October.

In other news, Canada’s Building Permits jumped 7.4 percent in October (CAD7.2 billion), according to the latest data from Statistics Canada. Employment Change came in almost double of its November forecast, 21,600. The Unemployment Rate stayed at 6.9 percent for a third straight month.

Commodities

Gold resumed its downside course this week, but bulls continued to resist declines throughout the week. The back-and-forth price movements were confined in the $1210-$1250 area for most of the week. We do not expect any changes in the price movement next week, but bears could still impose their strength, so bulls should keep that in mind.

Oil had a much better week in terms of price action as “black gold” sprung up nearly $6 after a lackluster November. Price could challenge the $99-$100 area if we do not see substantial retreat in price in the coming days.

Currency Pairs

EURUSD had another good run this week, posting its fourth straight bullish weekly close not to mention gaining a foothold of 1.3700 by the end of the week. This recent activity threatens more bears as the 1.3831 October high draws near. We expect a pullback towards the 1.3600s as a healthy retreat.

GBPUSD painted a different picture as the pair broke its streak of weekly gains this time. The pair rose through the 1.6400 level but it did not manage to hold above it. 1.6300 must continue to gain support in the coming weeks, otherwise GBPUSD would lag behind the other major currencies.

USDJPY slid for most of the week, but an impressive run-up last Friday managed to give this pair a bullish weekly close and sixth straight bullish week. The 103.72 May 2013 high, which is also the 4-year high, is now close by and is in danger of getting run over soon. If the JPY weakness continues.

The Week Ahead

Monday will be back with a busy Asian session. We will witness the release of Japan’s Current Account and Final GDP; Australia’s ANZ Job Ads; China’s CPI and PPI; Germany’s Trade Balance, succeeded by Switzerland’s Retail Sales; Eurogroup Meetings; Germany’s Industrial Production; BOE Governor Carney’s speech; US FOMC Bullard’s speech.

Tuesday will start early with Japan’s BSI Manufacturing Index and Tertiary Industry Activity; Australia’s NAB Business Confidence and Home Loans; China’s New Loans, Fixed Asset Investment and Industrial Production; UK, Italy, and France Industrial Production; UK Manufacturing Production and NIESR GDP Estimate; and US JOLTS Job Openings.

Wednesday will be a very brief news day with Australia’s Westpac Consumer Sentiment; Japan’s Core Machinery Orders; and US Federal Budget Balance. UK MPC Member Weale and US Treasury Secretary Lew will also give their respective speeches.

Thursday is a big day as New Zealand and Switzerland will announce their respective interest rates announcements and monetary policy statements. Australia will be out with MI Inflation Expectations and jobs data, while the United States will release Retail Sales, Jobless Claims, and Import Prices.

Finally, Friday will cap the week with New Zealand’s Business NZ Manufacturing Index; Switzerland’s PPI; US PPI; and UK MPC Member Dale’s speech.

US Jobless Claims Improve, Other US Economic Parameters Disappoint

The US dominated the economic news arena this week and it was a mixed bag.

US Pending Home Sales kicked off the week and it surprised to the downside, declining 0.6 percent in October. Based on the data given by National Association of Realtors, this is the fifth straight monthly decline.

US Building Permits were slightly higher at 0.97 million (versus 0.94 million expectations) for September, and breached the 1 million-mark in October (1.03 million versus 0.94 million expectation). The October reading is the highest in more than five years. S&P/CS Composite-20 HPI continued to increase for the third straight month with a 13.3 percent gain. Meanwhile, CB Consumer Confidence declined to a seven-month low in November (70.4 versus 72.2 forecast).

According to the US Census Bureau, Durable Goods Orders along with its core reading contracted on October. Purchase orders for durable goods declined 2 percent while purchase orders for core durable goods eased 0.1 percent during the same period.

On the other hand, US Jobless Claims improved for the second consecutive week. Only 316,00 Americans filed for unemployment benefits last week (analysts expected 331,000). Chicago PMI stayed above the 60 level for the second month in November at 63.0. Revised University of Michigan Consumer Sentiment rose to 75.1 in November.

In other news, New Zealand posted a Trade Balance of –NZD168 million, its lowest October trade deficit since the mid-1990s. This is the fourth straight trade deficit posted, but it has significantly declined since August.

Australian Bureau of Statistics reported that, after three consecutive quarterly declines, Construction Work Done surged a seasonally adjusted 2.7 percent in the September quarter. Meanwhile, Private Capital Expenditures also remained robust in the September quarter, surprising analysts with a 3.6 percent advance.

Commodities

After the strong bearish performance during the previous week, Gold took a breather this week and struggled to close in on the $1,200 level. Price pretty much stayed close to $1,250 throughout the week, and some eager bulls seem to have intervened as if they are seeing bargains. They will need to tackle potential seller ahead of $1,300 and perhaps above this level.

Oil went on to close down for the third straight week. Despite the last-ditch rally on Friday, price closed the week below $93 signifying sellers still have consistent control. Buyers must certainly exert more effort as there are a lot of wood to chop until $95.

Currency Pairs

The activity in EURUSD was subdued last week as bulls found it hard to take out the 1.3600 level for three consecutive days. If this indicates limited upside potential, we may see the pair drift down towards 1.3400-1.3500.

GBPUSD continued to outpace EURUSD for a third straight week as the former surged past its own tough resistance (1.6250-1.6300) with ease. The strong weekly close at 1.6367 gives the pair the extra jolt it needs to take on higher prices.

Meanwhile, USDJPY made another impressive run higher, giving the pair its fifth straight weekly advance. Now that 102 has completely been taken out, we could see an attack on the 103 level. The 60-month high comes in at 103.72.

The Week Ahead

Unlike the past few weeks, Monday will be relatively packed with news. It will begin with New Zealand’s Overseas Trade Index, succeeded by Australia’s Building Approvals and Company Operating Profits; China’s HSBC Final Manufacturing PMI; Japan’s Capital Spending and BOJ Kuroda speech; Manufacturing PMI for Spain, Switzerland (SVME), Italy, UK, and the US. Fed Chairman Bernanke will also give a speech not long after the start of the US session.

UK’s BRC Retail Sales Monitory will kick off Tuesday, followed by Australia’s Retail Sales, Current Account, and RBA Rate Announcement and Statement; China’s Non-Manufacturing PMI; Japan’s Average Cash Earnings; Spain’s Unemployment Change; UK’s Halifax HPI and Construction PMI.

Wednesday will have Australia’s GDP; Spain, Italy, and UK Services PMI; Eurozone Retail Sales; Canada Trade Balance, BOC Rate Announcement and Statement; US ADP Non-Farm Employment Change, Trade Balance, New Home Sales, ISM Non-Manufacturing PMI, and Beige Book.

On busy Thursday, there will be Australia’s Trade Balance; UK Autumn Forecast Statement, Asset Purchase Facility, Official Bank Rate and MPC Rate Statement; ECB Rate Announcement and press conference; Canada’s Building Permits and Ivey PMI; US Preliminary GDP, Jobless Claims, and Factory Orders.

Finally, Friday will remain active with the release of Switzerland’s Foreign Currency Reserves and CPI; UK Consumer Inflation Expectations; Germany’s Factory Orders; Canada and US jobs data; US Core PCE Price Index, Personal Spending, Personal Income, and Prelim UoM Consumer Sentiment.

Bank of England Leaves Interest Rate at 0.5%

The Bank of England’s Monetary Policy Committee, through its meeting minutes, declared on Wednesday that all of the nine Committee members decided to keep the Official Bank Rate and Asset Purchase Facility at the same rate, 0.50 percent and GBP375 billion, respectively. The Committee noted that the economy is in the path of sustained recovery and is at no significant risk of inflation hence the bank does not foresee any urgency in terms of raising interest rates.

In the same light, the US Federal Open Market Committee decided to keep the same pace of its asset purchase program ($85 billion per month, $45 billion per month of which is for purchases of Treasuries). QE tapering could be seen “in the coming months,” but the FOMC noted that the pace of asset purchases would continue to be appropriate for as long as the inflation and unemployment thresholds are not breached.

The us Department of Labor reported on Thursday that the prior week’s Unemployment Claims declined to 323,000, its lowest in seven weeks. Flash Manufacturing PMI rose to 54.3 after posting 51.8 on October. However, Philly Fed Manufacturing Index sunk to 6.5, the lowest reading in the last six months.

Commodities

Gold resumed its downhill move after making a brief pause just below the $1,300 level in the prior week. It was pretty much all about the bears this week starting Monday as bulls failed to even make a short revisit to $1,300. Price has now reached a near-five month low, and we expect the same thing next week if Gold cannot recover back above $1,300.

Oil continued to struggle around $95 this week. Price has been plowing through the same tight range ($92.50-$95.50) for 14 straight trading days, but we suspect that we will see some developments in the very near future. Tough support is seen below $95, so we could see a move toward $100 next week.

Currency Pairs

Though the trading range has been somewhat average, EURUSD traders had a volatile week particularly in the last three days after price whipsawed on either side of 1.3400. Large selling in the upper-1.3500s took price down briefly through 1.3400 on Wednesday, but buyers were quick to scoop up and absorb selling. If what we saw was serious buying, we could see the pair trading back in the 1.3600s again.

Price action-wise, GBPUSD performed better than EURUSD this week as the former was able to close in on its own October resistance area in the 1.6250s. If EURGBP breaks down further next week, we could see GBPUSD punch through 1.6250 easily.

USDJPY went on to create its fourth consecutive bullish weekly close after bulls triumphed in conquering 100 and 101, confidently closing above the latter on Friday. The only thing that blocks the way toward May 22’s 103.70 high is the early July high of 101.52.

The Week Ahead

Asia will be quiet for a second consecutive Monday. The European session will start off with

Switzerland’s Employment Level data, followed shortly by the UK’s BBA Mortgage Approvals, and later on by the US Pending Home Sales.

On Tuesday, the Bank of Japan will release its latest Monetary Policy Meeting Minutes. Then the UK will provide the Inflation Report Hearings, succeeded by a raft of US data which includes Housing Starts, Building Permits, S&P/CS Composite-20 HPI, and CB Consumer Confidence.

Wednesday will start very early with New Zealand’s Trade Balance data. Australia will follow a few hours later with Construction Work Done; Germany’s Gfk Consumer Climate; UK’s Second Estimate GDP, Preliminary Business Investment, and CBI Realized Sales; US Durable Goods Orders, Jobless Claims, Chicago PMI, and Revised UoM Consumer Sentiment.

On Thursday, activity will be relatively even throughout the day with Japan’s Retail Sales; ANZ Business Confidence; Australia’s Private Capital Expenditure and HIA New Home Sales; Switzerland’s GDP; Germany’s Preliminary CPI and Unemployment Change; BOE Carney’s speech and BOE Financial Stability Report; Canada’s Current Account, IPPI, and RMPI. The United States, meanwhile, will celebrate Thanksgiving Day.

Finally, Friday will end the week with New Zealand’s Building Consents; Japan’s Household Spending, Tokyo Core CPI, and Preliminary Industrial Production; Australia’s Private Sector Credit; Germany’s Retail Sales; Switzerland’s KOF Economic Barometer; UK’s Net Lending to Individuals; Eurozone CPI Flash Estimate and Jobless Rate; and Canada’s GDP.

US Debt Deal Struck at the 11th Hour; US Government Reopens

The world watched with bated breath as the US political crisis surrounding its debt came close to the October 17 (Thursday) deadline. After the debt deal passed the US Senate on Wednesday, the US House of Representatives voted 285-144 in favor of the debt deal, which included issues about the budget, debt ceiling, and government shutdown, as well as sequestration and Obama’s health care plan. The deal reopened the US federal government from its partial shutdown and narrowly averted a debt default which could have unprecedented global economic repercussions.

The government shutdown affected an estimated 900,000 federal workers, and is expected to hike the unemployment rate by a few percentage points. US lawmakers will get back to the negotiating table as the recent debt deal only funds the government until January 15, with the US Treasury allowed to borrow until February 7.

In other news, US Empire State Manufacturing Index declined to 1.5 in October, following four months of index readings above the 5 level. On the other hand, Philly Fed Manufacturing Index surprised with a reading of 19.8 in October, a good follow-up to September’s 22.3 figure.

In the United Kingdom, Consumer Price Index remained at 2.7 percent in September, but Producer Price Index Input declined for the second straight month (-1.2 percent). Meanwhile, the Office for National Statistics said Claimant Count Change registered a decline of 41,700, the greatest decline in over 16 years. The Unemployment Rate remained at 7.7 percent for the second month.

Commodities

A decisive $50 upmove in Gold on Thursday salvaged the bulls from seeing the $1,200 level and the three-year low set this June at $1,180. After the strong weekly close above $1,300, the next step for buyers is to bring price back towards $1,400.

Oil has now declined in five out of the last six weeks but the $100 level has not cracked on its first test. Topside resistance has been increasing and this will prove problematic for bulls in the coming week. A strong break of $104 is necessary to annihilate the very bearish mood that is developing.

Currency Pairs

EURUSD created the highest weekly close in nearly two years this week, climbing 230 pips to a 1.3703 high. It is important for buyers to keep the price afloat next week, avoiding takedowns through 1.3600-50 as much as possible. Next upside target is 1.4000-1.4250.

GBPUSD started the week very quiet but this changed towards the end of the week with a spike in volatility, resulting in a trading range of 330 pips. The pair exploded to the upside but was unable to take out the 1.6259 September high. Unlike EURUSD, GBPUSD will have to contend with multi-month resistance to as high as 1.6338 before it can trade in fresh territory.

USDJPY bulls continued to face headwinds as price gently moved up. They confronted mainstay sellers around 99.00 and bulls balked again, sending the pair lower to close the week at 97.74. Because of this, the 96.56 low set this October is back at risk.

The Week Ahead

This Monday, Asia will be pretty much quiet except for the release of Japan’s Trade Balance data. This will be followed by Germany’s PPI; Bundesbank Monthly Report; Canada’s Wholesale Sales; and US Existing Home Sales.

Tuesday will start quite late. There will be UK Public Sector Net Borrowing; Canada’s Retail Sales; and the delayed US jobs data (due to the recent US government shutdown), specifically Non-Farm Employment Change, Unemployment Rate, and Average Hourly Earnings.

Australia will kick off Wednesday with the announcement of CB Leading Index, Trimmed Mean CPI, and CPI. These will be succeeded by UK BBA Mortgage Approvals, MPC Asset Purchase Facility Votes and MPC Official Bank Rate Votes; US Import Prices; Belgian NBB Business Climate; Bank of Canada’s Rate Announcement and Statement, Monetary Policy Report, and press conference.

Economic data release on Thursday will start very early with New Zealand’s Trade Balance, followed by China’s HSBC Flash Manufacturing PMI; Germany, France, and Eurozone Flash Manufacturing PMI and Flash Services PMI; UK CBI Industrial Order Expectations; US Jobless Claims, New Home Sales, and Flash Manufacturing PMI.

Finally, Friday will have Japan’s Tokyo Core CPI; Germany’s Ifo Business Climate; Eurozone M3 Money Supply; UK Preliminary GDP; US Durable Goods Orders and revised UoM Consumer Sentiment.

US Shutdown Continues, Yellen New Federal Reserve Chairman

US shutdown enters its third week and it seems that there is no solution in sight. The US senate will now have to expedite the efforts to find a solution to the crisis before the US government reaches its debt ceiling.

In other US news, President Obama chose Janet Yellen to succeed Ben Bernanke as Federal Reserve Chairman. She is expected to maintain the current expansionary policies implemented by the Fed.

US Jobless Claims came in worse than expected, based on the prior week’s data from the Department of Labor. Jobless Claims ballooned by 66,000 to 374,000 and was attributed to the current US government shutdown and a computer system-related backlog in California.

The preliminary University of Michigan Consumer Sentiment dropped to 75.2 in October, the lowest reading since January’s 71.3 reading.

Bank of England decided on Thursday to leave its Official Bank Rate unchanged at 0.50 percent, and its Asset Purchase Facility at GBP375 billion.

UK Manufacturing Production surprisingly contracted 1.2 percent, the most in nearly a year according to the Office for National Statistics on Wednesday. Meanwhile, trade deficit came in more than expected, GBP9.6 billion.

In Canada, a very weak Building Permits figure was reported by Statistics Canada last Monday. Permits sank 21.2 percent on August, falling from the record 21.4 percent gain registered in July. Trade deficit increased slightly to CAD1.3 billion. Meanwhile, Employment Change climbed less than expected, 11,900 (versus 15,300 forecast). On the other hand, Unemployment Rate improved to the lowest in nearly five years, 6.9 percent from the August reading of 7.1 percent.

Commodities

Gold displayed signs of bullish fatigue early this week. Bears took notice and tore down all buying above the $1,300, and bulls quickly retreated. This resulted in four straight days of selling until Friday, pulling price down to its lowest in four months. The risk now is for a move towards the 2013 low (also the three-year low) at $1,180.

Oil has now declined in four out of five weeks and this is bad news for bulls who’ve been trying to aim for a move back toward $110. Just like Gold bulls, Oil bulls struggled on the topside and this paved the way for bears to aim for lower prices, which they succeeded in doing. A sustained break of the $100 level could prove more disastrous.

Currency Pairs

Looking at the weekly chart, EURUSD has been trading close to the 1.3500 level for three weeks now. Bulls must be able to print a strong weekly close at/or above 1.3600-1.3700 to maintain the momentum on their side.

In a matter of a few weeks, GBPUSD has gone from a leader to one of the laggards of the major pairs. Bulls failed close strongly above the 1.6200 level during the prior week, and this opened up the possibility for downside attacks this week. Coupled by a spate of weak UK data, the pair closed the week below 1.6000, a serious indication that bears are increasing their control. If 1.6000 will not be recovered quickly, we could see 1.5600-1.5800 soon.

Thanks to the latest recovery in the Dollar, USDJPY gained considerably this week after playing with fire with the ascending trendline discussed in the previous week. It won’t be smooth-sailing for bulls as they have to contend with sellers around 99.00-100.00.

The Week Ahead

This Monday, we will witness the release of Australia’s Home Loans; China’s New Loans, PPI, and CPI; Switzerland’s PPI; and Eurozone’s Industrial Production. The United States will observe Columbus Day, while Canada will celebrate Thanksgiving Day.

The Reserve Bank of Australia will kick off Tuesday with the disclosure of the latest Monetary Policy Meeting Minutes. This will be followed by UK’s PPI, RPI, and CPI; Eurozone’s and Germany’s ZEW Economic Sentiment; and US Empire State Manufacturing Index.

Economic data release on Wednesday will start very early with New Zealand’s Consumer Price Index. Then, this will be succeeded by UK’s Unemployment Rate, Average Earnings Index, and Claimant Count Change; Eurozone CPI; Canada’s Manufacturing Sales; and US Beige Book.

Thursday would be a rather short news day this week with Australia’s NAB Quarterly Business Confidence; Eurozone Current Account; UK Retail Sales; Canada’s Foreign Securities Purchases; and US Jobless Claims and Philly Fed Manufacturing Index.

Friday will also be a short one with RBA Governor Stevens’ speech; China’s Industrial Production, Gross Domestic Product, and Fixed Asset Investment; BOJ Governor Kuroda’s speech; and Canada’s CPI.

Interest Rates Unchanged, US Government Shutdown

The main news item in the previous week was undoubtedly the US government shutdown. It is impacting the US economy and the global economy alike.

Two central banks announced their latest interest rates this week. The European Central Bank and Reserve Bank of Australia both held their respective benchmark interest rates unchanged at 0.50 percent and 2.50 percent, respectively.

In Japan, Household Spending surprisingly declined 1.6 percent. Meanwhile, the third quarter Tankan Manufacturing Index rose sharply to 12, beating its forecast for an advance to 7.

In Australia, Building Approvals declined more than expected in August, contracting 4.7 percent versus an expectation for a 0.7 percent decline. Trade Balance for August showed a –AUD0.82 billion deficit.

In the United States, a mixed slew of economic data were reported this week. US Unemployment Claims increased 308,000 (less than expected); Chicago PMI rose to 55.7 in September (versus August’s 53.0); ISM Manufacturing PMI climbed to 56.2, while ISM Non-Manufacturing PMI declined in September to 54.4 from 58.6 the previous month; and US ADP Non-Farm Employment Change increased less than expected (166,000). The Non-Farm payroll report was absent this Friday due to the US government shutdown.

Commodities

Now that the week is over, we could see that the prior week was just a pause from the prevailing downtrend in Gold. Buyers attempted on Monday to rally price through the $1,350s but easily failed. This gave sellers the chance to control the market the entire week. The move toward $1,277 could be a prelude to what will come next week.

It was a completely different story for Oil. After three consecutive weekly declines, Oil made its first weekly advance after nearly breaking $101 on Monday and Tuesday. Buyers need to go through a thick forest of resistance around $105-$108.

Currency Pairs

EURUSD broke new ground this week after hesitating in the mid-13500s for two weeks. The pair is moving closer to breaking its 2013 highs at 1.3710 which was posted in late-January. If the pair can push higher further next week, and then we could see new highs sometime before the current year closes.

A huge reversal ended the week for GBPUSD, after reaching a new 2013 high of 1.6259 last Tuesday. 1.6000 is back in the hot seat and we could see a good battle happen in this area next week.

USDJPY bearishness remains prevalent despite attempts break higher through the 98.00s. The up-trendline extending all the way from February remains at risk of breaking. A big move could arise if this trendline gives way.

The Week Ahead

The most significant issue this week will be the US government shutdown. This issue has a huge impact on the American and global economies and the markets are deeply affected by it.

This Monday, a significant number of Australian banks will observe Labor Day. However, the Australian Industry Group will release its Construction Index. Japan will have BOJ Monthly Report and Leading Indicators, while Switzerland will release Foreign Currency Reserves. Meanwhile, Canada will issue the latest Building Permits report.

New Zealand will open up Tuesday with NZIER Business Confidence, followed by UK BRC Retail Sales Monitor; Japan’s Current Account; Australia’s NAB Business Confidence and ANZ job Advertisements; Germany’s Factory Trade Balance; Switzerland’s Retail Sales and CPI; and Canada’s Trade Balance.

On Wednesday, there will be Australia’s Westpac Consumer Sentiment; Japan’s BOJ Monetary Policy Meeting Minutes; UK Trade Balance, NIESR GDP Estimate, and Manufacturing Production; and US FOMC Meeting Minutes.

On Thursday, there will be Business NZ Manufacturing Index; Japan’s Tertiary Industry Activity and Core Machinery Orders; Australia’s MI Inflation Expectations, Unemployment Rate, and Employment Change; China’s New Loans; ECB Monthly Bulletin; UK Interest Rate Announcement and Statement; Canada’s NHPI; and US Jobless Claims.

On Friday, the market will only have a few key economic data to look at, mainly jobs reports from the United States and Canada.

Bank of England Confident in The Country’s Economic Recovery

After the release of the Bank of England’s Monetary Policy Committee Meeting Minutes in the prior week, news wires broadcasted on early Thursday that BOE Chief Carney does not find a reason to provide more QE, given that the economic recovery has “strengthened and broadened.”

In other news, New Zealand’s statistics agency revealed last Wednesday that the Trade Balance weakened further and more than expected in August. The trade deficit ballooned to NZD1.191 billion. This is the worst trade deficit since late-2008.

In the UK, CBI Realized Sales soared to 34 in September. Analysts were upbeat but were only expecting 24. Meanwhile, Current Account was weaker than expected at –GBP13 billion.

In the United States, Unemployment Claims continued to beat its forecast for the fourth consecutive week (305,000 versus 319,000 forecast).

US Pending Home Sales declined more than expected in August, according to the National Association of Realtor’s latest report. Sales declined 1.6 percent (analysts expected a 0.9 percent decline).

The Revised University of Michigan Consumer Sentiment posted its second straight reading below the 80-level, 77.5.

Commodities

Not much happened in Gold this week and there are signs of a possible move back into the $1,400s. Gold bulls successfully defended the $1,300 for five straight days, and this means they got a tiny headstart for next week’s trading. Before they get too complacent, they must strike down potential sellers at and ahead of the $1,400 level. A break of $1,430 is the upside target.

Oil was a different story as price was down for the third straight week. The weekly close below $103 was a strong statement against bears, and they should gear up for next week. There is still time for them to shore up price back into the $105s. That’s their goal for this coming week.

Currency Pairs

EURUSD has been very quiet this week. In fact, its 101-pip weekly trading range is one of the lowest in many weeks. This pair lags behind GBPUSD but is still poised to move higher if it can make a good close above 1.3600.

GBPUSD went on to complete its fourth straight bullish week, closing comfortably above the 1.6100 level for the first time since early January. Bulls are looking for a break through 1.6400 in the coming weeks.

USDJPY’s 127-pip weekly range was not enough to break out of the prior week’s range. The pair continues to find problems moving away from 98 and reaching the 100.00 level. Price action-wise, the chart looks ugly and we could see 95-96 soon.

The Week Ahead

The brand new week ushers in the month of October starting on Tuesday.

On Monday, the market will have relatively fewer economic releases to look at compared to previous end-of-month days. New Zealand will have Building Consents. This will be followed by Japan’s Retail Sales and Preliminary Industrial Production; ANZ Business Confidence; Australia’s Private Sector Credit; China’s HSBC Final Manufacturing PMI; Germany’s Retail Sales; UK Net Lending to Individuals; Eurozone CPI Flash Estimate; Canada’s GDP; and US Chicago PMI.

Japan will open up Tuesday with Household Spending and Tankan Indices. China will observe National Day but Manufacturing PMI will be out. Other news include Australia’s Retail Sales, Interest Rate Announcement and Statement; Spain’s Manufacturing PMI; Germany’s Unemployment Change; and US ISM Manufacturing PMI.

On Wednesday, there will be Australia’s Trade Balance and Building Approvals; UK Construction PMI and Halifax HPI; ECB’s Interest Rate Announcement and press conference; and US ADP Non-Farm Employment Change.

On Thursday, worthy news to watch out for come in the form of China’s Non-Manufacturing PMI; Italy, UK, and Spain Services PMI; Eurozone Retail Sales; US Jobless Claims, Factory Orders, and ISM Non- Manufacturing PMI.

On Friday, the market will only have a couple of key economic data to look at, particularly BOJ’s Monetary Policy Statement and press conference; Germany’s PPI; and US Non-Farm Employment Change, Jobless Rate; and Canada’s Ivey PMI.

US Federal Reserve Puts off QE Tapering

According to the latest Minutes from the US Federal Reserve’s Federal Open Market Committee policymakers opted to wait for further evidence before they put the tapering option on the table. There was no change in the forward guidance as well as on the Federal Funds Rate (less than 0.25 percent rate).

The Federal Reserve Bank of Philadelphia announced that its Manufacturing Index surged to 22.3 in September, the strongest expansion since March 2011.

Meanwhile, US TIC Long-term Purchases surprised to the upside as purchases went up $31.1 billion. This is the first advance since January.

In other news, the Swiss National Bank held its LIBOR rate unchanged at less than 0.25 percent. SNB affirmed its protection of the minimum EURCHF rate at 1.20.

Minutes from the Bank of England’s Monetary Policy Committee showed a consensus among the officials to retain the status quo in terms of policy. MPC policymakers voted 0-0-9 to keep the asset purchase facility and Official Bank Rate unchanged.

 Commodities

Gold had a very volatile week with the US FOMC’s “no taper” announcement mid-week. Price had traded below $1,300 several hours prior the FOMC announcement and found support at $1,291. And then the FOMC announcement drove price higher toward $1,367 just ahead of the New York close one hour later. With the absence of follow-through momentum, price slid back down and ended the week at $1,325, the same closing price printed during the prior week. If the latest price action is an indication of inherent weakness, we could see price drift further down toward $1,250-70.

Oil bulls are in bad shape as price printed its second consecutive weekly close last week – and below $105 to boot. It is the first weekly close below $105 since mid-August and we could see further declines next week. $102-$103 could be seen next week.

Currency Pairs

Majors had an amazing run-up this week and EURUSD was no exception as it flew high past 1.3500 for the first time since early February. The pair started the week with a gap up and launched higher by 200 pips on Wednesday. The strong weekly close above 1.3500 could indicate a possible move toward 1.3600-50 quickly.

Like EURUSD, GBPUSD flew high on Wednesday but more than 50 percent evaporated by Friday after sellers dominated after the FOMC announcement. The only consolation for bulls was that the pair held firm just above the 1.6000 psychological levels. The near-term topside goals come at 1.6250-1.6300, while sellers want to bring price back towards 1.5700.

USDJPY enjoyed a nice bullish weekly close despite the gap-down seen on Monday. The FOMC announcement on Wednesday pulled the pair from 99.32 to a low of 97.75, but price reversed strongly on Thursday.  Not much price movement was seen on Friday and the week closed near the high at 99.35. Bulls should aim to gate crash through 100.00 in the coming week.

The Week Ahead

On Monday, a host of Flash Manufacturing PMI and Flash Services PMI data will be released and they will come from China, France, Germany, Euro-zone, and US (Flash Manufacturing PMI only). A host of speeches will also come from top officials such as ECB President Mario Draghi, SNB Chairman Thomas Jordan, MPC Member Ben Broadbent, and US FOMC Member William Dudley.

 

On Tuesday, the market will only have a couple of key economic data to look at, particularly Germany’s Ifo Business Climate, UK BBA Mortgage Approvals, Canada’s Retail Sales, US S&P/CS Composite-20 HPI, and US CB Consumer Confidence.

 

Wednesday starts early with New Zealand’s Trade Balance, RBA’s Financial Stability Review, Germany’s Gfk Consumer Climate, UK CBI Realized Sales, US Durable Goods Orders, and US New Home Sales.

 

Thursday news release will start somewhat late as the Asian session will be devoid of important economic data. ECB will release M3 Money Supply, then this will be followed by UK’s Current Account and Final GDP; US Jobless Claims, Final GDP, and Pending Home Sales.

 

Friday will be the most jam-packed news day in the coming week, starting with Japan’s Tokyo CPI; New Zealand’s ANZ Business Confidence; Germany’s Prelim. CPI; France Consumer Spending; Switzerland’s KOF Economic Barometer; ECB Draghi’s speech; US Core PCE Price Index, Personal Income, Personal Spending, and Revised UoM Consumer Sentiment. FOMC Members Rosengren, Evans, and Dudley will also give their respective speeches.