European Session: USD Lower as Risk Appetite Firms

Market Brief

Despite strong economic data releases and central banks meetings, the currency market was unable to break its last week trading range with USD unchanged against the EUR and CHF, while AUD being the best performer of the week gaining 1% against the Dollar, supported by Gold which climbed to a 6 months high. Traders as usual have been waiting for the release of US nonfarm payrolls on Friday, but it seems they were unable to trade the news. A high volatility was seen, but no clear direction for the Dollar as nonfarm play rolls contracted by -216K jobs, slightly below the -220 expected, while unemployment rate rose more than expected to 26 years highs at 9.7%. VIX index, a measure of stock-market volatility known as Wall Street’s fear gauge, climbed to as high as 29.57, but closed the week at 25.26.

The EUR traded lower against the Dollar after the release of US NFP, but managed to end the day higher as stocks rebounded. The ECB announced to keep its refinancing rate unchanged at 1%, while slightly revised up economic forecasts. The ECB seemed in its meeting to be signaling that rate policy does not include consideration about exit strategy, meaning that even though exit strategy could be announced soon, rates would remain low for long period of time.

The GBP appreciated 0.7% against the USD. UK PMI manufacturing index came below expectations at 49.7, while PMI services rose strongly to 54.1 above expectations at 53.9. Auto sales rose by 6% in July. The pound was pressured earlier in the week on concerns about the outlook for the UK economy and in response to the BOE’s recent decision to expand quantitative easing. What’s concerning me more is there are just little signs of an increase in bank lending consumer or companies, meaning that banks are keeping the money pumped by BOE, which could put more pressure on the economy.

The AUD was the best performed among major currencies, supported by IMF which announced global economy is emerging from downturn, and speculations that RBA would be the first to increase rates, probably by the end of the year. In addition to that Gold prices surged sharply topping at $997.65, supported by a report mentioning that sovereign wealth fund of China is selling some of China’s USD reserve for gold. The Gold is indicating that long term up trend might continue and we’re looking forward for a test of $1033.9 highs and a break above here could send the precious metal higher towards $1100-$1200 levels.

This week would possibly start slow as today is a Labor Day holiday in US and the US market is closed. Later this week, we’ll have 3 central banks meetings, Reserve bank of New Zealand, Bank of England, and Bank of Canada. All are anticipated to keep rates unchanged, but focus will be on economic outlook and stimulus programs. On Wednesday OPEC members will be meeting in Vienna, and I believe their concern is to keep oil prices above $60 per barrel, not so much higher not to curb demand. Today’s economic calendar is light, and focus would be on Euro Zone Sentix Investor confidence which is anticipated to rise from -17.0 to -13.7, where a reading above the forecasted could help the EUR continue its bullish momentum.

Currency Tech

AUDUSD
R 2: 0.8815 R 1: 0.8695
CURRENT: 0.8524
S 1: 0.8379
S 2: 0.8240

USDCAD
R 2: 1.1125
R 1: 1.1100
CURRENT: 1.0845
S 1: 1.0792
S 2: 1.0720

EURJPY
R 2: 135.00
R 1: 134.15
CURRENT: 133.61
S 1: 130.95
S 2: 130.49

USDMXN
R 2: 13.845
R 1: 13.730
CURRENT: 13.38
S 1: 13.330
S 2: 13.205

• S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot