This week started off on a cautious note as investors were looking ahead to a speech Fed chairman Ben Bernanke was due to hold at the Jackson Hole Symposium tomorrow. Anticipation was building and investors were wary of what positions to build on ahead of the event.
Over the weekend German Chancellor Angela Merkel reiterated Germany’s opposition to euro bonds, at least for now. Ms Merkel went on to say that euro bonds were not the solution to the current crisis. Finance Minister Wolfgang Schaeuble also indicated that until further integration is attained, differing yields for the different countries within the eurozone will serve as an incentive to run a solid economy.
Also during the weekend Japan warned it was ready to take action if JPY price changes remained one sided. Last Friday the USD/JPY reached lows of 75.95. FX markets were expecting intervention if the currency pair slipped back below 76.00.
The gold rush continued throughout the former part of this week, the safe haven metal brushed ahead of the $1,900 level last Tuesday, marking seven days of consecutive gains. Silver also registered remarkable gains. From month’s start silver is up 10.86 per cent while gold gained 17.64 per cent.
The rush for the metals comes on the back of the uncertainty surrounding the global economic recovery but also as the “safer” options become restricted. FX investors were wary of pushing the USD too far given the event risk later this week. The Swiss franc and the Japanese yen remained overshadowed by the respective central banks’ general readiness to counter their currency’s strength.
GBP also gained an enhanced role in the FX world. As the viable alternatives continue to shrink the UK’s fiscal situation appears to stand out (despite its own shortfalls) when compared to the uneven eurozone equivalent.
Driving risk sentiment and general overall concerns is the ongoing eurozone debt problem and the sluggish and in some cases disappointing numbers coming out of the US economy. FX investors are building expectations over Mr Bernanke’s speech at the Jackson Hole Symposium tomorrow – some are even expecting the outcome to be a game changer.
Talk of a third round of quantitative easing, to supplement economic growth, is resurfacing again. Although one should also add that there seems to be a general scepticism over the efficacy and possible effects (given the threat of inflationary pressures) a third round of QE might have.
It appears that the eurozone debt situation cannot find any respite. Earlier this week the ECB announced bond purchases that totalled €14.18 billion throughout last week, and while the figure is lower than the previous week’s €22 billion – the amount continues to point towards the severity of the financial troubles.
Last Tuesday eurozone growth gained attention as France, Germany and the eurozone as a whole released their flash PMI numbers. A run through the numbers shows that the French PMI Manufacturing fell short of previous figures while the German equivalent remained in line with the previous.
In the services sector French PMI was higher than the previous but the German equivalent dragged lower. The broader eurozone figures were on the whole relatively positive as all actual figures came out higher than expected numbers.
Up to the time of writing, in the former part of the week the euro managed a slim 0.20 per cent gain, GBP was up 0.08 per cent, the USD lost -0.56 per cent, CHF was down -0.80 per cent, and the yen was down 0.61 per cent.
For the EUR/USD currency pair, throughout the current week we see resistance in the region of 1.4524 – 1.4653 and to the downside support at 1.4125 – 1.4261. We correctly anticipated the correction up to 1.4500 seen last Tuesday.
For the EUR/GBP currency pair we see resistance in the 0.8827-0.8916 region, and support at 0.8564- 0.8650 region. For the current week we see a possible rise towards the formerly stated resistance zone, after which a downside move is expected.
The Swiss franc’s weakening stalled when seen against the euro and the USD. The EUR/CHF traded in the range of 1.1267-1.1423 earlier this week significantly off August 9 lows of 1.0072. The USD/CHF traded in the range of 0.7839-0.7911 again significantly off August 9 lows at 0.7066.
Upcoming FX key events:
Today: UK CBI Distributive Trades, German Consumer Confidence.
Tomorrow: US & UK GDP, US PCE and Michigan Consumer Sentiment.
FX technical key points:
EUR/USD is neutral.
EUR/GBP is neutral.
USD/JPY is bearish, target 75.50, key reversal point 81.50.
GBP/USD is neutral.
USD/CHF is bearish, target 0.7000, key reversal point 0.8500.
AUD/USD is bearish, target 0.9800, key reversal point 1.1000.
NZD/USD is bearish target 0.7800, key reversal point 0.8800.
Please feel free to send any comments or feedback regarding our articles on trading@rtfx.com.
RTFX Ltd (“RTFX”) is licensed to conduct investment services business by the Malta Financial Services Authority. This information does not constitute an offer or solicitation and is provided for information purposes only.
This information shall not be deemed to constitute advice and should not be relied on as such to enter into a transaction or for any investment decision. Any opinions expressed in this document represent the views of RTFX at the time of preparation.
They are thus subject to change without notice. RTFX believes that the information contained herein is accurate as at the date of publication. However, no warranty of accuracy is given by RTFX and no liability in respect of any errors nor omissions, including any third party liability, are accepted by RTFX or any director, officer or employee.
www.rtfx.com
Mr Muscat is a senior trader at RTFX Ltd.