The Aussie and the Kiwi started the week on a strong footing early into Monday’s session. The Kiwi reflected a stronger-than-expected reading for the New Zealand Performance Services Index, but gains for both currencies soon fizzled out as the weekcontinued in progress.
Early into Tuesday’s session the RBA released the minutes of its August meeting, the outcome of which was seen as dovish. The RBA said the currency’s direction will be important in determining future policy and pointed out that the possibility of further rate cuts was still on the cards. The Reserve Bank of New Zealand from its side announced home lending restrictions and made comments to the effect that the NZD was overvalued.
The economic calendar for the former part of this week was, relatively speaking, less eventful but high impact data started picking up on Wednesday with the release of the Fed’s FOMC meeting minutes. Before the event speculation was as usual rampantly high, as investors tried to pick clues on the Fed’s QE tapering stance.
In the meantime, on the currency markets the EUR/USD’s perform-ance remains rather flat for the current month. After opening at 1.3310 the currency pair held mostly within a 1.32 - 1.34 range, unable to take a clear direction, at least up to the former part of this week (before the Fed minutes).
Despite what has looked very much like a frail economic recovery for the eurozone, the single currency has handsomely held well above the 1.30 levels for most of the current year, perhaps to the detriment of the eurozone’s exports.
Data compiled by Bloomberg show that commercial banks’ repayments of the funds borrowed under the ECB’s long-term refinancing operations (LTROs) have helped contain the ECB balance sheet to $3.2 trillion, while the Fed’s balance sheet increased to a record $3.6 trillion, with the gap between the two central banks implying less euros (relative to USDs) circulating in the financial markets.
In the meantime, US data continued to tend towards the positive; last week advanced retail sales saw their fourth consecutive rise and it was reported that July home sales continued to increase to the highest level in more than three years. The more robust US data continue to be, the more likely that the Fed will take a breather from its Asset Purchases programme, hence the renewed focus on US data as the Fed gauges when to push the QE taper button.
We are expecting the EUR/USD, currently at 1.3421, to find resistance in the region of 1.3407/1.3480; to the downside, support should cap down moves at 1.3233/1.3132. On the daily timeframe we are expecting the currency pair to continue within the current triangular set-up.
Early into week start data out of Japan showed that the Japanese trade deficit continued to widen and was significantly larger than the con-sensus estimates. USD/JPY ticked higher as the data hit the wires, but it eventually slipped to lows of 96.98 – at the time of writing we are trading at 97.09. The CAD continued to weaken and according to the Bloomberg Correlation-Weighted Currency Index is down -1.59 per cent for the current month. USD/CAD is trading at 1.0391 at the time of writing, despite easing from year’s highs at 1.0608 (seen early July), and the CAD continues to lose with respect to the USD.
The CAD loses ground as it underperforms its biggest trading partner, data out of Canada have been on the weaker side and in addition the US is inching closer to Fed tapering every time US data continue to improve.
Last Tuesday June wholesale sales for Canada contracted by 2.8 per cent, offsetting a previous + 2.3 per cent and disappointing expectations for a -0.5 per cent.
The price for gold emerged to one-month highs at $1384.62 last Monday, and has so far gained something around 4.5 per cent for the current month. The move comes ahead of the release of the Fed minutes that were to be released Wednesday, and was also helped by a weaker US dollar.
The economic docket gets busier on Friday as we are expecting GDP data out of Germany and the UK. The German economy is expected to have grown by +0.9 per cent for the second quarter while the UK economy is expected to have registered a growth of +0.6 per cent.
Upcoming FX key events:
Today: EZ PMI Services & PMI manufacturing, and Canadian retail sales.
Tomorrow: UK & German GDP, EZ consumer sentiment and US new home sales
Technical key points: EUR/USD is bearish, target 1.2800, key reversal point 1.3550. EUR/GBP is neutral. USD/JPY is bullish, target 105.60, key reversal point 92.50. GBP/USD is bearish, target 1.5426, key reversal point 1.5750. USD/CHF is bullish, target 0.9400, key reversal point 0.9100. AUD/USD is bearish, target 0.8760, key reversal point 0.9520. NZD/USD is neutral.
RTFX Ltd is licensed to conduct investment services business by the MFSA. This information does not constitute advice, should not be relied on as such to enter into a transaction or for any investment decision and is provided for inform-ation purposes only.
Rudolf Muscat is a senior trader at RTFX Ltd.