Mid last week US GDP advance Y/Y was close to flat, barely rising from the previous 2.6 per cent reading. Comments from the Fed that same day in the evening, however, provided some reassurance after this quasi-flat reading. The FOMC communication indicated that there was a pick-up in growth recently and that household spending appears to be rising more quickly. The net effect was to see a weaker USD as the unassuming GDP performance seemed to propel investors to expect that the Fed would not rush into reversing its low rate policy.

As expected the FOMC reduced its monthly asset purchases to $45 billion, as it pared the pace of its MBS and Treasury purchases by another $10 billion, and the interest rate remained unchanged. The Fed also reiterated that it would likely keep benchmark rates close to zero for a “considerable time”, even after asset purchases are unwound.

The highlight for the USD was the labour market health check at the end of last week. The US created 288k jobs during the month of April, up from a previous 203k. The strong data did not do much to help the buck, because even if it lent some immediate support, it was short-lived and was completely erased within a couple of hours.

Pressure keeps mounting for the EZ as the single currency stubbornly clings on to its gains. At the time of writing, according to the Bloomberg Correlation-Weighted Currency Index, the euro is up +0.5 per cent in this last month and looks back at +2.35 per cent and +6.29 per cent gains respectively in these last six and 12 months.

EUR/USD is currently at 6-week highs. Earlier this week we’ve seen weekly highs of 1.3940 as investors seemingly want to test ECB president Mario Draghi’s patience, as we moved closer to the ECB communication today.

Earlier this year Draghi showed concern over the euro’s strength, as he linked it to weaker inflation, but it seems investors would like to test his resolve to talk down the single currency.

RBA kept rates on hold on Tuesday, making no changes to its current policy rate of 2.5 per cent. The Australian Central Bank sounded more positive on the labour market and maintained its current policy tone. This helped the Aussie attract some bids and was overall in positive territory early into Tuesday’s trading.

The GBP success story continues, early last week the advance reading for the first quarter, GDP growth was out at 3.1 per cent rising on the previous 2.7 per cent. Last Tuesday the reading for the UK Services PMI, essentially a health check of the UK services sector, showed that this sector in April grew at its fastest pace in these last four months – driven by employment and new business. The BoE is due for its interest rate decision today and while most likely no changes will come forth as the central bank keeps the interest rate at a record low, analysts are expecting an increase in rates as early as this year.

The British pound’s gains continue with the BCWI showing gains of +1.37 per cent and +4.93 per cent respectively over the last three- and six-month period. The GBP/USD has reached weekly highs of 1.6992, levels we had last seen in August 2009, as the currency pair continues in its longer-term bullish trend.

The GBP was stronger against the euro as well; the EUR/GBP is currently trading at the level of 0.8208 after hitting fresh lows of 0.8196 last week.

Gold looks more determined at the start of the current month, with price action registering +1.27 per cent gains in these first few days. Currently trading around the price of $1,308, gold got a good leg-up following the release of the US Payrolls data last Friday. The better than expected release initially hurt gold. However, the trend was soon reversed as price hit close to $1,264 support.

Being a non-interest bearing investment, gold initially was sold as the better than expected US data hit the wires, because the prospect of an eventual rate rise from the Fed becomes more palpable – however, bids for the yellow metal flowed back as gold hit fresh lows. The unrest in Ukraine and a disappointing Q1 GDP reading from the US soon calibrated the initial euphoria exactly after the US payrolls data last Friday.

Upcoming FX key events:
Today: Swiss CPI, BoE and ECB rate decision.
Tomorrow: US wholesale sales, UK industrial production and Canadian unemployment rate.

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 1.7000, key reversal point 1.6560. 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.

Please feel free to send any comments or feedback regarding our articles on trading@rtfx.com.

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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.

www.rtfx.com

Rudolf Muscat is a senior trader at RTFX Ltd.

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