Undoubtedly, the ongoing events in Ukraine continued to dampen risk appetite throughout this last week.
As the current week started, a previous negative US close, and a cautious start for Asian equities implied a certain degree of investor concern and caution, not only because of Ukraine but also because of some high impact data due throughout this current week.
The euro continues to build on its monthly gains and overall is among the top three performers so far this past year – up 6.46 per cent according to the Bloomberg Correlation Weighted Index (BCWI).
At the time of writing the EUR/USD is just inches away from key 1.39 levels. Since last week the currency pair has delivered five consecutive daily gains and though we may be up for some correction, the broader trend remains overall bullish.
As we move closer to the upcoming ECB meeting on May 8, investors will continue to try to understand whether or not the ECB will effectively indulge further stimulus or not. Despite the various messages from Mr Draghi attempting to talk down the single currency’s strength, the euro has shown a remarkable resilience to date.
It also managed to defy expectations of a stronger US dollar as the Fed switched to tapering and it signalled that rate rises remain on track.
At the time of writing, the EUR/USD is trading at 1.3813 levels, eyeing April 11 highs of 1.3905 and possibly a level at which we may expect the ECB to start coming out with rhetoric to talk down the euro’s support, especially as we are just days away from the next ECB meeting.
In the meantime, from the US we had some important data coming out this week; yesterday we had the first quarter annualised GDP figure and the Fed’s communication later on in the evening, and tomorrow the limelight is expected to go to the US payrolls data for April.
The US economy is expected to have created 215,000 new jobs in April, up from the previous 192,000.
The US dollar overall attracted losses at least for the first four weeks of April. Against the Japanese yen the USD was unable to re-attempt monthly highs seen early in April, where the currency pair hit highs of 104.12 and is currently trading around 102.63.
The Japanese yen was able to attract some support throughout April, especially through safe-haven flows when concerns over Ukrainian unrest escalated, but all in all despite the gains seen so far in 2014, the JPY is practically flat when seen against a basket of major currencies.
In March Japanese retail sales registered some significant gains, but this is being attributed to a temporary escalation ahead of the sales tax hike that kicked in this month. The BoJ was due to announce any changes to its policy stance mid-week as well.
The pound retains the title of the top mover this last month as well; according to the BCWI the GBP is up 1.05 per cent against a basket of major currencies.
Last Tuesday the preliminary reading for first quarter GDP showed a continued growth with the year-on-year figure out at 3.1 per cent and the quarter-on-quarter reading out at 0.8 per cent, rising from 2.7 per cent and 0.7 per cent respectively.
The GBP initially sold off immediately after the data hit the wires, because despite the gains, when compared to previous numbers, the actual data was slightly softer than expected.
However, the GBP soon recovered its shine and was back to where it was against the USD (around 1.6830) ahead of the US session.
The Reserve Bank of New Zealand raised policy rates by 25 basis points to 3 per cent at the end of last week. The move was very much in line with consensus estimates. The Kiwi had been reflecting this expectation well ahead of the event when we hit 0.8745 earlier in April, levels we had not seen since August 2011. Since then price action reflected some correction in line with the saying “buy the rumour, sell the fact” and is now trading at 0.8548, but year to date the NZD is nevertheless up 3.63 per cent according to the BCWI when seen against a basket of major currencies.
Upcoming FX key events:
Today: UK PMI manufacturing, US PMI manufacturing & ISM manufacturing survey.
Tomorrow: EZ unemployment rate & US non-farm payrolls.
Technical key points:
EUR/USD is neutral. EUR/GBP is neutral. USD/JPY is bullish, target 104.12, key reversal point 101. GBP/USD is bullish, target 1.6900, key reversal point 1.6450. USD/CHF is bearish, target 0.8575, key reversal point 0.9000. AUD/USD is bullish, target 0.9540, key reversal point 0.8900. NZD/USD is bullish, target 0.8850, key reversal point 0.8400.
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Rudolf Muscat is a senior trader at RTFX Ltd.