We had a busy end of session last week, where we had the Bank of England and the European Central Bank leave rates unchanged at 0.5 per cent and 0.75 per cent respectively. The BOE made no changes to its asset purchases target while the ECB downgraded its growth forecast and gave no hints of the speculated-upon rate cut.
Gold seems to be unable to find the necessary trigger to pursue higher levels
Last Friday, the US unemployment rate ticked lower to 7.6 per cent from a previous 7.7 per cent, but investors were more concerned with the thinner amount of jobs created throughout March. Non-farm payrolls rose by 88,000, disappointing expectations of 190,000. This actual figure was, in fact, the lowest in nine months.
In reality, the reduction in the unemployment rate is a tiny step closer to the Fed’s targeted 6.5 per cent even though the move lower remains so far marginal. But analysts have also highlighted the reduction in the labour market participation rate which slows to its lowest level since 1979 – falling from 63.5 per cent to 63.3 per cent. It essentially tells us that a number of US citizens either stopped working or looking for work and thus raising doubts, if whether the reduction in the unemployment rate is only temporary.
The EUR/USD continues to trend higher throughout April: up to the time of writing we have seen highs of 1.3073. The euro’s support and the US dollar’s weakness come on the back of the two major events at the end of last week; the ECB rate decision and the US payrolls data. The Fed’s FOMC minutes that had to be published yesterday evening should by eyed for possible hints of the Fed’s possible quantitative easing (QE) exit.
Trading at the price of 1.3069 at the time of writing, we do not expect the EUR/USD’s renewed short-term bullishness to be very long lasting – we are expecting the currency pair to correct towards 1.2907 in the current week. Support lies in the region of 1.2824/1.2639, while resistance is expected at 1.3117/1.3225. If the 1.3225 level is breached expect more bullishness for the EUR/USD.
As we moved into the current week, we note that the limelight went to the Japanese yen, early into the Monday session the yen was the biggest loser among the majors. The yen is hitting some record levels against both the USD and the euro. Earlier this week the USD/JPY hit fresh highs of 99.66, levels last seen in May 2009; and the EUR/JPY was up to 129.93, levels last seen in January 2010.
In the former part of this week, the yen was losing an average of 1.36 per cent across the majors. The increased momentum in Monday’s session came on the back of the start of the asset purchases the Bank of Japan announced last week. In the first policy meeting for the newly appointed Governor Haruhiko Kuroda last week, the BOJ announced it would double its holdings of bonds and stocks among other measures.
In the former part of this week the British pound dips into negative territory, despite the strong gains made against the weaker yen, it loses across the rest of the majors. This week, from the UK we had a stronger than expected industrial production figure that was taken positively. The data was for February.
For the current week we expect the EUR/GBP to find resistance in the 0.8532-0.8582 region while moves lower should be capped at 0.8421 – 0.8361.
So far gold seems to be unable to find the necessary trigger to pursue higher levels. What we should note, however, is that price action has remained supported around the $1522.62 level, a level that if seen on daily time frame has capped moves lower since September 2011, making $1,522.52 a key level to watch out for. If this level remains unbreakable we should expect a bounce higher in the short term, but if to the contrary this level is broken expect more downside.
The yellow metal did end up higher, ticking to highs of $1581.11 last Friday, after the weaker than expected US payrolls data, but so far the importance of the moves has been minimal. Up till now expectations that the US Fed would be trying to find the opportune time to wrap up QE (sooner rather than later) have worked negatively for the metal. Even if the softer US data, we had on Friday, should in theory postpone the QE exit, investors will need more proof before pushing the metal higher again.
Upcoming FX key events
Today: German CPI, Canadian New Housing Price Index
Tomorrow: Eurozone industrial PUS Advance Retail Sales and University of Michigan Consumer Sentiment index.
Technical key points
EUR/USD is bearish target 1.2660, key reversal point 1.3300.
EUR/GBP is neutral.
USD/JPY is bullish, target 101.5, key reversal point 90.00.
GBP/USD is bearish target 1.45, key reversal point 1.5427.
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.