High impact data out of the US last Friday set the tone at week’s start. The US’s first quarter GDP advanced (annualised) reading improved, coming out at 2.5 per cent when compared to the previous reading of 0.4 per cent; but investors were more focused on the data being softer than expected. Consensus expectations were forecasting a three per cent reading.
Last week gold scored its biggest weekly gain for 2013
This left a mark both on US equity close last Friday but also on the US dollar itself. EUR/USD drifted to a close of 1.3033, as the USD weakened, after the currency pair had previously hit lows of 1.2990 in the same session. The currency pair has kept to the range of 1.3031 – 1.3120, at least in the former part of the week.
The EUR/USD will likely manifest some interesting price action throughout this week as investors prepare for the possibility of any monetary policy changes from the Fed and the ECB. The Federal Reserve was due to announce its decisions late Wednesday evening, while the ECB shall be communicating its decision Thursday afternoon.
The limelight is not only for the Central Banks. Tomorrow the US will also be publishing the payrolls data for April – in essence, a view on how many jobs have been created throughout the month.
The euro has, up to the time of writing, held on to the 1.30 levels when seen against the US dollar. The euro enjoyed some support as news that Italy had managed to undo a two-month old political deadlock hit the wires.
The newly appointed premier, Enrico Letta, was sworn in and named his cabinet over the weekend. Mr Letta won a first vote of confidence, as he made it clear that focus should shift to jobs and economic growth, while austerity should take the back bench. Investors reacted positively pushing bond yields lower.
One should keep in mind that Italy is the third largest economy in the eurozone. Letta is expected to push these objectives forward – with visits to Berlin and Paris scheduled for this week.
According to the Bloomberg Correlation-Weighted Currency Index, the British pound was 1.42 per cent higher for the past month recovering some of the losses suffered for the past year. The index provides an indication of the currencies’ relative strength or weakness against a representative basket of currencies.
Apart from this index, had we to separately see how the GBP performed over the month, we see that the GBP’s largest gains came from against the JPY and the AUD. Despite the overall gains the British pound was flat or marginally weaker against the euro.
This month, the GBP gained 1.93 per cent against the USD. The GBP/USD hit highs of 1.5546 last Monday, levels last seen in February. The currency pair has retraced close to 50 per cent of the losses suffered by the GBP throughout the current year. To the upside the next resistance levels are at 1.5590/1.5695 while to the downside support should cap price moves at 1.5288/1.5091. The pound is enjoying support as investors unwind some of their larger bets for stimulus from the BoE, especially given the better than expected reading for Q1 GDP released last week.
Early Tuesday morning we had some mixed data out of Japan; household spending was stronger than expected, jobless rate ticked lower and even large retailers’ sales managed to beat expectations.
On the other hand, however, industrial production and construction orders, among others, dipped lower. Data shows some signs of improvement as Japan’s new prime minister and the BoJ’s newly appointed governor start to stir the economy into a new direction, nevertheless the overall mixed picture reminds us that there is still a long way to go.
According to the Bloomberg Correlation-Weighted Currency Index the yen has lost -4.44 per cent over the past month.
Last week gold scored its biggest weekly gain for 2013, rising to highs of $1485.40 after slipping to lows of $1321.95 in the previous week. Price for the yellow metal is expected to find support at $1412.40/$1367.24 for the current week. To the upside, the price for gold could be eyeing $1494.20 (the 61.80 per cent retracement of April 2/16 move lower); and beyond that at $1530.56.
Upcoming FX key events
Today: ECB interest rate decision.
Tomorrow: US Non-Farm Payrolls and Unemployment rate, EZ PPI.
Technical key points
EUR/USD is neutral.
EUR/GBP is neutral.
USD/JPY is bullish, target 102.0, key reversal point 92.50.
GBP/USD is bullish, target 1.5660, key reversal 1.5150.
USD/CHF is neutral.
AUD/USD is neutral.
NZD/USD is neutral.
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Rudolf Muscat is a senior trader at RTFX Ltd.