Last week recap

EUR/USD declined last week as both countries reported mixed economic data and the Greenback strengthened after the market finished reacting to the Fed’s QEIII and the ECB’s OMD stimulus plans. The week began on a soft note, with the rate dropping from its weekly high of 1.3172 after the United States reported the Empire State Manufacturing Index came out at -10.4, significantly lower than the -1.9 print that was expected. Also out Monday was the EZ Current Account, which showed a surplus of +9.7B, versus an expected surplus of +10.9B. The pair continued dropping on Tuesday as both countries reported favourable economic data. German ZEW Economic Sentiment came out at -18.2, versus -19.2 expected, while EZ ZEW Economic Sentiment improved to -3.8 from -21.2, and significantly better than the -16.3 that was expected. U.S. numbers had the Current Account show a deficit of -117B, versus -126B expected and TIC Long Term Purchases, which came out at +67.0B, versus +37.3B anticipated. The rate consolidated at a slightly higher level on Wednesday as the German government asked for a strict separation of monetary policy and bank supervision and favoured the creation of a separate entity in which the larger Euro economies would have a larger say in the decision making process. Wednesday’s economic numbers had U.S. Building Permits come out at 0.80M as widely anticipated and U.S. Existing Home Sales increasing to +4.82M versus +4.57M expected. On Thursday, the rate resumed its decline, making its weekly low of 1.2919 after disappointing economic news from China, indicating further weakness in the global economy supported the Greenback. The rate weakened despite favourable results from a Spanish auction of 10-year bonds. Economic numbers on Thursday included German Flash Manufacturing PMI, which printed at 47.3, versus an expected reading of 45.4 and the U.S. Philly Fed Manufacturing Index which came out with a reading of -1.9, versus -4.1 expected. The pair then consolidated at a slightly higher level on Friday after statements from a ECB’s Mario Draghi in which he noted, "I have often said that the Bundesbank is a great institution, and I respect it very much. It would be great if we could always work together. We have done that many times, but at the moment, we have different opinions on the best way to react to the crisis. We all share the same objective of delivering on price stability, but we are not in full agreement about the best way to achieve that." Also, a report in the UK Financial Times stated that the ECB was in talks with the Spanish government on a possible bailout package. EUR/USD went on to close at 1.2976, showing an overall loss of -1.1% from its previous weekly close.

USD/JPY lost some ground last week as the BOJ left rates unchanged but increased its stimulus program doubling the size of its asset purchases. The rate began the week on a positive note, as asset flows favoured the Greenback and in the absence of any significant economic data out of Japan. The pair continued moderately higher on Tuesday after the United States reported a favourable Current Account number. On Wednesday, the pair declined sharply after making its weekly high of 79.21 after the BOJ left its benchmark Overnight Call Rate at <0.10% as widely expected. Nevertheless the bank decided to increase its asset purchase program. The rate statement after the release noted that “The Bank decided to increase the total size of the Program by about 10 trillion yen, from about 70 trillion yen to about 80 trillion yen. The increase in the size of the Program corresponds with the size of additional purchases of treasury discount bills (T-Bills) by about 5 trillion yen and Japanese government bonds (JGBs) by about 5 trillion yen.” In the press conference following the rate release, BOJ Governor Shirakawa stated that “If you look at the yen on a trade-weighted real effective exchange rate basis, the yen has weakened somewhat in the past month. If you look at the yen versus the dollar, the trend has been for some yen gains. We are not worried about foreign exchange rates per se, but we are worried about currency moves as a strong yen could have a negative impact on corporate sentiment.” Thursday saw the rate extend its losses, making its weekly low of 78.01 despite the Japanese Trade Balance showing a deficit of -0.47T, versus -0.37T that was expected. The pair continued showing weakness on Friday in the absence of any significant economic releases out of either country, bringing USD/JPY to close at 78.12, showing an overall loss of -0.3%for the week

GBP/USD gained fractionally last week as the BOE’s MPC Meeting Minutes showed a unanimous decision to keep rates and the asset purchase facility unchanged. The week began with Cable moving up fractionally after the UK Rightmove HPI declined by -0.6% m/m, versus a previous decline of -2.4%. On Tuesday, the rate began moving lower as UK CPI came out at 2.5% y/y as was widely anticipated, and UK RPI, which increased by +2.9% y/y, versus an expected increase of +3.1%. Cable continued pressured on Wednesday after the MPC Meeting Minutes confirmed the unanimous decision to keep the benchmark Official Cash Rate unchanged at 0.50% and the Asset Purchase Facility at 375B. In the post-rate announcement, the BOE stated that, “The slowdown in the global economy, particularly in the euro area, was probably a factor behind the relatively weak expectations for activity reported by the UK business surveys. Further steps were likely over coming weeks and months to alleviate strains in the euro area and to provide additional support for vulnerable member states as they sought to finance public and external deficits and to rebalance their economies.” The pair continued losing ground on Thursday, making its weekly low of 1.6162 despite UK Retail Sale declining by -0.2% m/m, versus an expected decline of -0.3%, and UK CBI Industrial Order Expectations, showing a reading of -8, versus -14 that was expected. On Friday, Cable made its weekly high of 1.6308 after UK Public Sector Net Borrowing came out at 12.4B, versus 13.2B expected. GBP/USD went on to close at 1.6224, with an overall gain of just 10 pips and virtually unchanged for the week.

AUD/USD gave back some of its impressive gains last week as risk assets and precious metals sold off against the Greenback. The week began on a soft note, with the rate tumbling after making its weekly high of 1.0554 on Monday as the prices of precious metals also declined and despite Australian New Motor Vehicle Sales increasing by +3.6% m/m, versus a previous reading of -1.1% revised down from -0.8%. The pair continued heading south on Tuesday after the RBA’s Monetary Policy Meeting Minutes indicated members were willing to lower rates if economic conditions warranted and also “Members noted that most model-based estimates of the currency generally placed a large weight on the terms of trade. With the terms of trade still high by historical standards, these models suggested that the Australian dollar may have been somewhat overvalued, but not substantially so, although members also noted the significant uncertainty that surrounded this assessment.” The pair then consolidated at a slightly higher level on Wednesday as the Australian MI Leading Index increased by +0.4% m/m, versus a previous reading of +0.5%. On Thursday, the rate made its weekly low of 1.0366 after news that the Chinese economy continued slowing down, which supported the Greenback across the board. The pair then recovered on Friday after the Australian CB Leading Index came out with a flat reading, versus a previous number upwardly revised from +0.2% to +0.5% bringing AUD/USD to close at 1.0452, with an overall decline of -0.9% from its previous weekly close.

USD/CAD gained ground last week as the Greenback appreciated against risk assets and Canada reported lower than expected economic data. The week began with the rate rising after Canadian Foreign Securities Purchases came out at +6.67B, versus an expected +11.30B. The pair then consolidated at the 0.9745 level on both Tuesday and Wednesday with no significant economic data out of Canada. On Thursday, the pair made its weekly high of 0.9815 after news of a continuing economic slowdown in China affecting the world economy. The rate then consolidated at a slightly lower level on Friday after Canadian Core CPI came out at +0.3% as widely anticipated bringing USD/CAD to close at 0.9760, showing an overall gain of +0.5% for the week.

NZD/USD showed little change last week as risk assets declined against the U.S. Dollar and New Zealand reported mostly better than expected economic numbers. The week began with the rate trading lower on Monday despite the New Zealand Westpac Consumer Sentiment index printing at 102.5, versus a previous reading of 99.9. The pair then consolidated at a slightly higher level on Tuesday after the New Zealand Current Account came out showing a deficit of -1.80B, versus -1.63B expected. On Wednesday, the rate dropped marginally despite New Zealand GDP increasing by +0.6% q/q, versus an expected +0.4% rise. Thursday saw the rate gain after making its weekly low of 0.8204 in the absence of any data out of New Zealand and as China announced lower than expected economic data. The rate then made its weekly high of 0.8334 on Friday before trading down on position squaring, bringing NZD/USD to close at 0.8288, with an overall gain of just 3 pips and virtually unchanged on the week.


Weekly Market Watch

The Week Ahead

USD: The upcoming U.S. economic calendar is about as active as last week, featuring the CB Consumer Confidence survey on Tuesday. Monday starts the week’s highlights off with a speech by FOMC Member Williams, and Tuesday’s key events include the S&P/CS Composite-20 HPI (1.5%), CB Consumer Confidence (62.9), Treasury Secretary Geithner. Wednesday then features New Home Sales (381K) and Crude Oil Inventories (last 8.5M), while Thursday offers Core Durable Goods Orders (0.2%), Weekly Initial Jobless Claims (378K), Durable Goods Orders (-4.3%), Final GDP (1.7%), Pending Home Sales (-0.7%). Friday’s important data then concludes the week with the Core PCE Price Index (0.1%), Personal Spending (0.5%), Chicago PMI (52.9) and the Revised University of Michigan Consumer Sentiment survey (78.9).

AUD: The upcoming Australian economic calendar is quieter than last week, featuring the RBA Financial Stability Review on Tuesday. Monday is quiet, so Tuesday starts the week’s highlights off with the RBA Financial Stability Review and a speech by RBA Assistant Governor Debelle. Wednesday and Thursday offer little of note, and Friday’s important data then concludes the week with Private Sector Credit (0.3%). Resistance for AUD/USD is seen at 1.0518, 1.0612/23 and 1.0843/55, with support noted at 1.0366, 1.0275/1.0322 and 1.0165.

NZD: The upcoming New Zealand economic calendar is a bit quieter than last week, featuring the NBNZ Business Confidence survey (last 19.5) out on Thursday. The only other important data due out next week will be Building Consents (2.0%) scheduled for release on Friday. The chart for NZD/USD shows resistance at 0.8317/51, 0.8468 and 0.8840. On the downside, technical support is expected at 0.8204/40, 0.8013/78 and 0.7912/66.

GBP: The upcoming UK economic calendar is quieter than last week, featuring the Current Account on Thursday. Monday is quiet, so Tuesday starts the week’s highlights off with BBA Mortgage Approvals (28.6K). Wednesday then features the BOE Credit Conditions Survey and CBI Realized Sales (6), while Thursday tentatively offers the Nationwide HPI (Sep 27th-31st, 0.2%), the Current Account (-12.2B) and Final GDP (-0.5%). That concludes the week’s important data since Friday offers little of note. Resistance to the topside for GBP/USD shows at 1.6255/1.6308, 1.6617 and 1.6745, while support for the pair is expected at 1.6162/64, 1.6062 and 1.5894/1.5912.

EUR: The upcoming Eurozone economic calendar is about as active as last week, featuring the German Ifo Business Climate survey (102.6) on Monday. Tuesday’s key events include the EZ GfK German Consumer Climate survey (6.0) and a speech by ECB President Draghi. Wednesday then features German Preliminary CPI (0.0%) and the tentatively scheduled German 10-year Bond Auction (last 1.42 average yield|1.1 bid-to-cover ratio). Thursday offers the German Unemployment Change (10K), the EZ M3 Money Supply (3.3%) and the tentatively scheduled Italian 10-year Bond Auction (last 5.82 average yield|1.4 bid-to-cover ratio). Friday’s important data then concludes the week with German Retail Sales (0.5%), French Consumer Spending (0.1%), French Consumer Spending (-0.4%) and CPI Flash Estimate (2.4%). Resistance for EUR/USD is seen at 1.3168, 1.3283 and 1.3385, with support showing at 1.2919, 1.2747 and 1.2625.

JPY: The upcoming Japanese economic calendar is than last week, featuring the BOJ’s Monetary Policy Meeting Minutes on Monday to start the week’s highlights off. Tuesday, Wednesday and Thursday offer little noteworthy data, while Friday featured data then concludes the week with Household Spending (1.1%), Tokyo Core CPI (-0.2%), Preliminary Industrial Production (-0.4%) and Retail Sales (-0.3%). Resistance for USD/JPY currently shows up at 78.83/79.21, 79.65/80.09 and 80.54/61, with support indicated at 78.00/13, 77.25/94 and 76.02.

CAD: The upcoming Canadian economic calendar is a bit busier than last week, featuring GDP data on Friday. Monday starts the week’s highlights off with a speech by BOC Governor Carney, and Tuesday’s key events include Core Retail Sales (0.3%), Retail Sales (0.4%) and a speech by Governing Council Member Lane. Wednesday and Thursday then feature little of note, while Friday’s important data then concludes the week with GDP (0.2%). Resistance for USD/CAD is seen at 0.9815/59, 0.9764/99 and 0.9913/79, while support shows at 0.9631, 0.9404/43 and 0.9055.