As we approach month’s end, up to the time of writing, the EUR/USD is still trading around 1.3550 levels only just marginally off from where we officially started the current month at 1.3588.
Throughout the course of the past week, from the eurozone we had the release of some high impact data for the region. EZ manufacturing and sales PMI figures (a health check for the respective industries) were reported at 51.5 and 50.9 respectively, both numbers in growth (50 delineate growth from contraction), but what we could see is a widening gap between the region’s two largest economies, Germany and France.
Right across the Atlantic, in the US, advance retail sales for October declined, but the data was better than expected, US inflation remained benign with Y/Y headline figure out at one per cent easing from a previous 1.2 per cent. US PMI was stronger at 54.3 and jobless claims declined and actually managed to beat consensus expectations.
Rewinding to last week however, the main focal point for the US dollar was Wednesday’s FOMC meeting minutes. Overall, despite the overshadowing commitment to stimulus “… as long as is needed…” voiced equally by Bernanke and Yellen recently, it looks like the path to tapering has not been derailed.
The FOMC minutes showed that improving economic conditions could trigger the tapering of asset purchases in the coming months. Fed officials sounded quite optimistic that upcoming economic performances would be in sync with their expected outlook.
The USD did gain traction against the euro, but in reality it was the only day it closed stronger than the single currency throughout last week. The greenback was helped by the FOMC minutes but it looks like the real boost lower for the EUR/USD came earlier on Wednesday, on news headlines circulating comments that the ECB is considering negative deposit rates for commercial lenders that are parking excess cash at the Central Bank.
In retrospect the fact that this was discussed should have been no new news for investors and this became increasingly evident after the ECB’s Draghi downplayed these hyped rumours saying that there was no news with regards to negative rates.
Throughout the second half of November, the EUR/USD found significant resistance around 1.3550. We should expect the US dollar to continue to gain traction in the medium to long term. But in the interim investors should caution as Bernanke’s successor takes the lead and will likely provide headwinds, as she continues to manifest the dovishness that she has been associated with.
We’re expecting the EUR/USD to remain mostly biased lower. A key break above 1.3570 – 1.3618 region on daily close will expose 1.37 levels, while a daily close below 1.3440 should aim to target 1.33 levels.
The US dollar’s ascent against the Japanese yen continues, this week price action boasted six-month highs when it reached 101.91. Earlier this week the BoJ sounded pessimistic in the minutes released for the last BoJ policy meeting, with one of the officials saying it was highly uncertain to reach the two per cent inflation target. Last week was the fourth consecutive week that the USD/JPY registered higher prices.
For the current week we’re expecting a bit of a pullback for the currency pair. We expect much of the up-move to lose traction around 101.93 - 102.54 and to pull back to 100.75 – 100.45 zone.
At the time of writing it looks like the Aussie is about to registers its fifth consecutive day of declines as the AUD sells off. Comments towards the end of last week by the RBA Governor Stevens let investors know that intervening to weaken the Aussie was still an important alternative for the Australian Central Bank.
For the current week we’re expecting the AUD/USD decline to stop ahead of 0.9058. After this move down we could see the currency pair reattempting 0.93/0.9360 levels.
The price for the yellow metal seems to have consolidated around $1,230 levels and in the former part of this week managed to pare back some of the losses made throughout the course of last week. Gold suffered a -2.46 per cent decline on Wednesday after Fed minutes showed that tapering plans could be expected in the coming months. We’re expecting the yellow metal to pare back some of last week’s losses with targets around $1,266.61 – 1,276.50.
Upcoming FX key events:
Today: German unemployment rate and change, EZ economic confidence, German CPI.
Tomorrow: EZ CPI, CAD GDP
Technical key points:
EUR/USD is neutral. EUR/GBP is neutral. USD/JPY is bullish, target 103.70, key reversal point 92.50. GBP/USD is neutral. USD/CHF is neutral. AUD/USD is bullish, target 0.9300, key reversal point 0.8890. NZD/USD is neutral.
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Rudolf Muscat is a senior trader at RTFX Ltd.