The US dollar closed the week slightly lower in relation to the single currency, as the currency pair reflected the latest, more moderate stance taken by Fed President Ben Bernanke. Towards the end of last week Bernanke delivered a two-day testimony in front of Congress.
In reality, despite some erratic moves manifested in the EUR/USD’s price action, it seemed overall that the currency pair lacked the necessary momentum and struggled to find direction. The Federal Reserve chairman managed to go on with his testimony without revealing any fresh, much-sought-after taper news, and most importantly seems to have balanced well the bears and the bulls. He said that the Fed was ready to add or reduce easing as required, dependent on data. This led to a slide in US Treasury yields and the US dollar.
The euro was weighed by issues revolving around Portugal, whose major parties failed to strike an agreement over the remaining spending cuts required for the bail-out, thus raising doubts on the nation’s ability to complete the bail-out programme by 2014. Yet, early into the current week, pressure on the single currency eased after the Portuguese President said the Government will stay in power to ensure that the bail-out remains on track.
Throughout recent trading, we have seen the British pound recover some of the previously-lost ground, on the back of the release of the BoE Monetary Policy Committee’s latest minutes, released on July 17. The pound was supported as there were no votes for renewed easing, even though MPC members remain open to further stimulus. The GBP was also supported by improving economic data.
Seen against the US dollar, the GBP gained 3.85 per cent, rising from July lows of 1.4813 to month’s highs of 1.5384 seen in Monday’s session. The British pound has managed to erase losses made earlier in July.
Against the single currency, the GBP gathered some pace as well as it recovered 1.48 per cent from its weakest point in July. Overall, however, the EUR/GBP, currently trading at 0.8587, is close to flat for the month of July.
Gold rose 13 per cent since June lows of $1180.70 (levels hit on June 28, 2013). The yellow metal is seeing the largest recovery seen since year-start. It has closed two consecutive weeks in gain and we wait to see if the current weekly close will continue to confirm the trend.
In the former part of this week, gold has traded within the range of $1,296.37 - $1,339.52. To the upside the $1,380/$1,424 region should provide resistance while to the downside $1,264/$1,238 should provide a floor to price moves lower.
In the former part of the week the Aussie enjoyed support, lifted by a generally favourable risk sentiment. The AUD/USD currency pair rose to weekly highs of 0.9285 after opening this week’s session at 0.9182; even against the euro, the AUD gained ground and pushed the EUR/AUD currency pair down to 1.4212 early into Tuesday’s session.
The yellow metal is seeing the largest recovery since year-start. It has closed two consecutive weeks in gain and we wait to see if the current weekly close will continue to confirm the trend
The AUD was also reacting to important changes from its biggest trading partner – China. Last Friday the Chinese central bank announced it shall be scrapping the floor on lending rates for commercial banks in hopes that competition among lending banks may give the end borrowers better access to cheaper funding.
In the former part of the current week, the USD/JPY continued to decline to 99.14. This level was hit early into Tuesday’s session. The JPY garnered support into week-start as it eases off highs of 101.53 seen earlier in July.
Meanwhile, over the weekend Japan faced upper House elections. In the end the results lent Abe and his ruling bloc a landslide victory which gives the coalition party control of both chambers. The yen celebrated the results. Most importantly the yen found support over the fact that the LDP’s victory was not an independent party victory, but rather a ruling bloc victory. Speculators had expected that an independ-ent victory for the LDP would have given Prime Minister Abe a greater incentive to pressure for more aggressive easing, and this in turn could have weakened the yen further.
Upcoming FX key events
Today: UK GDP and US durable goods orders.
Tomorrow: US Michigan consumer sentiment.
Technical key points
EUR/USD is bearish, target 1.2700, key reversal point 1.3250. 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 0.7500, key reversal point 0.8350.
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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.
Rudolf Muscat is a senior trader at RTFX Ltd.