At the end of last week the US reported stronger than expected preliminary annualised GDP data for the second quarter, with data coming in at 2.5 per cent versus an expected 2.2 per cent and a previous 1.7 per cent.
The US dollar rose to seven-week highs on the back of a combination of tensions around Syria and expectations of Fed tapering, with these risk events continuing to leave their mark on the Forex market.
Earlier this week the USD/JPY experienced a small dip as the media reported comments from the Russian Defense Ministry that said it detected the launch of two ballistic objects aimed towards the Middle East – even though the effect of these comments was not very long lasting.
The USD/JPY, trading at 99.50 at the time of writing, looks set to re-test 100 levels with the Fed expected to start the unwinding of its asset purchases in the near future. The eventual unwind of the Fed’s asset purchases programme will continue to lend support to the greenback as the Fed reduces liquidity and thus make the US dollar more expensive.
On Tuesday US ISM factory activity for the month of August rose more than expected, building the case for the Federal Reserve to taper stimulus from this month.
ISM manufacturing PMI rose to 55.7 from 55.4 versus consensus for 54.0. Construction spending increased to the highest level in four years by 0.6 per cent in July, from -0.6 per cent the previous month against a forecast for 0.4 per cent.
The gradually improving data out of the US will continue to lead investors to keep an eye on the Fed’s stance at its next FOMC meeting, scheduled for September 17 and 18, as they speculate on the timing of the Fed’s unwind of QE.
Since Wednesday of last week, straight through the former part of this week we’ve seen the EUR/USD lose more than 200 pips, as the US dollar gathered pace against the single currency. On the daily charts the currency pair, currently trading around 1.3170, has brushed below the 50-day moving average at 1.3193 and has exposed 1.3136/1.3143, respectively the 100 and 200 day moving average.
Ahead of us this week we’re expecting volatility for the EUR/USD to pick up, with some high profile data in sight. The EZ was scheduled to report the preliminary GDP reading for the Q2 and retail sales for July yesterday, while today the Bank of Japan (BoJ), the BoE and the ECB should announce their policy rate decision and tomorrow the US will announce the Non-Farm Payrolls.
German retails sales for July contracted by -1.4 per cent defying consensus figures of 0.6 per cent. Despite the eurozone area recovery gains momentum, EZ data issued last Friday showed inflation slowed more than expected in August as energy prices declined, and unemployment was reported unchanged at 12.1 per cent.
Gold prices rose to three and a half month highs at $1,433.94 on Wednesday of last week, supported by safe-haven buying on concerns of an imminent military strike on Syria by the US and its allies. But we’ve seen the price for the yellow metal pull-back since then as consent for parliamentary approval in the UK has so far failed to materialise.
The gradually improving data out of the US will continue to lead investors to keep an eye on the Fed’s stance at its next FOMC meeting
Gold is trading at $1397.25 at the time of writing; and for the current week, to the upside we are expecting resistance to be in the region of $1422.33/$1450.34, while to the downside price action should find support in the region of $1377.94/$1361.55.
Early into this week’s Tuesday’s session the Reserve Bank of Australia (RBA) announced that it was effecting no changes to its cash rate target, currently at 2.5 per cent, this was in line with consensus figures. Most importantly the RBA Governor, Glenn Stevens said that the current monetary policy remained appropriate and did not signal any further easing for the coming months.
In the former part of the week the GBP/USD was trading in the range of 1.5505 – 1.5603; for the current week the price is expected to find resistance at 1.5597/1.5697, while to the downside at 1.5412/1.5327.
On Tuesday UK PMI construction data for August was stronger than expected with actual data coming out at 59.1, versus consensus figures of 56.9 and a previous month’s reading of 57.00 – the GBP/USD rose to session highs after the data.
Upcoming FX key events
Today: Bank of England Rate Decision & Asset Purchases Target, ECB Rate Decision.
Tomorrow: US Change in Non-Farm Payrolls and US Unemployment Rate.
Technical key points
EUR/USD is neutral.
EUR/GBP is neutral.
USD/JPY is bullish, target 105.60, key reversal point 92.50. GBP/USD is neutral.
USD/CHF is neutral.
AUD/USD is bearish, target 0.8760 key reversal point 0.9520.
NZD/USD is bearish, target 0.7600, key reversal point 0.8200.
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 information purposes only.
Rudolf Muscat is a senior trader at RTFX Ltd.