Towards the end of last week, the Bank of England left interest rates unchanged and left the Asset Purchases Target at £375 billion, as was widely expected. Actually the pound has enjoyed some better than expected data over the course of the last few weeks and this has generally helped support for sterling.
Despite the losses made against a strengthening US dollar (GBP/USD slipped to lows of 1.5269 so far after opening the current month at 1.5531), the British pound was practically flat against the euro.
In the background, UK Prime Minister David Cameron’s announcement that the Government was prepared to propose a draft bill to make an in-out EU membership referendum legally binding by 2017 met a stark reply from European Union finance ministers.
Despite the increased support seen over the past month, the GBP started the current week on a weaker tone, ahead of an inflation report that was expected to be dovish, but also due to Prime Minister Cameron’s announcement.
Earlier in May, the GBP/USD’s attempts higher stopped just short of 1.56 levels so a break of this level, if it materialises, could be key. In the former part of this week the currency pair has traded in the range of 1.5258–1.5384. For the current week, we are expecting the initial weakness to give in to a rise towards the 100-day moving average at 1.5495, with key resistance at the 1.5534/1.5708 levels; while support should be seen in the region of 1.5250/1.5140.
The euro has remained overall in support across the majors, despite losing to the US dollar and the Canadian dollar; the single currency remained in the lead when seen against the rest of the major counterparts.
After hitting four-month lows early last April the trend seen on daily charts remains rather neutral with the currency pair drifting mostly between 1.30–1.32 levels. The price for the EUR/USD is currently trading at 1.2981, despite this move below 1.30, for the current week we are expecting a recovery back to 1.31 levels. To the downside support should be seen at 1.2882/1.2779 while to the upside resistance should cap moves higher at 1.3141/1.3297.
Yesterday, the eurozone was expected to report GDP figures for the first quarter of the current year.
Over the past week, we have seen the US dollar continue to strengthen against its major peers. The EUR/USD slipped to lows of 1.2935 last Friday, but the currency pair has seemingly found a temporarily floor and this week has so far kept just off this level, at least up till the time or writing.
Similarly, the USD/JPY pushed higher, as the US dollar strengthened against the JPY and despite the fresh highs of 102.15 seen last Monday, the pair eased to 101.26 last Tuesday. At week start, Japanese shares jumped to five-year highs supported by further JPY weakness after the Group of 7 did not criticise the stimuli measures from the Bank of Japan.
At the time of writing, the Japanese yen remains weaker against the USD, EUR and the CHF but scores some gains against the weaker GBP, CAD, AUD, and NZD. Overall the JPY manages average gains of 0.20 per cent.
For May the NZD sheds around 3.70 per cent when seen against the USD, after opening the month at 0.8547 and has so far hit lows of 0.82283. Despite the significant overall gains the NZD made against the majors it is now giving back some of these gains. According to the Bloomberg Correlation-Weighted Currency Index the kiwi has seen gains of +7.73 per cent over the past year. The hard blow to the kiwi came on the back of comments from the Reserve Bank Governor mid-last week. Addressing Parliament’s finance and expenditure select committee Graeme Wheeler said that the Central Bank has been intervening and selling the NZD, in the interest of economic growth. Mr Wheeler also added that the Central Bank may continue to do so if needed.
After retracing more than half of the April 12-16 move lower, the price of gold was unable to attempt higher. After the recent two-week rally that stopped just ahead of $1,500 levels, the price for the yellow metal eased lower and is currently trading at $1,428.76. The higher US dollar also dragged on support for gold.
Upcoming FX Key events
Today: EZ CPI, US CPI & Philadelphia Fed index.
Tomorrow: Canadian CPI & Michigan Consumer Sentiment.
Technical Key points
EUR/USD is neutral.
EUR/GBP is neutral.
USD/JPY is bullish, target 103.26, key reversal point 97.15.
GBP/USD is neutral.
USD/CHF is neutral.
AUD/USD is bearish, target 0.9824 key reversal point 1.03.
NZD/USD is bearish, target 0.8150 key reversal point 0.8678.
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This information shall not be deemed to constitute advice and should not be relied on as such to enter into a transaction or for any investment decision. Any opinions expressed in this document represent the views of RTFX at the time of preparation.
They are subject to change without notice. RTFX believes that the information contained herein is accurate as at the date of publication.
Rudolf Muscat is a senior trader at RTFX Ltd.