EUR/USD strengthened last week as the U.S. Dollar weakened

Last Week Recap

EUR/USD strengthened last week as the U.S. Dollar weakened against all the majors with the exception of the Pound Sterling. The week began with no significant economic releases out of the Eurozone on Monday, although the rate still traded down to 1.2659. Also on Monday, the U.S. Core PCE Price Index came out at 0.1% month on month — as was widely anticipated — while Personal Spending increased by 0.4% month on month, showing a slight improvement over the previous reading of 0.0%. On Tuesday, EUR/USD made its weekly low of 1.2625 after the German Unemployment Change fell less than expected at -17K versus an expected reduction of -19K. Also, Eurozone Unemployment held steady at 10% and the Eurozone CPI Flash Estimate came out at 1.6%, with both numbers being consistent with the market’s expectations. Tuesday also saw some positive U.S. numbers, with the CB Consumer Confidence survey increasing to 53.5 — significantly better than the consensus of 50.7. Also, the S&P/ CS Composite 20 HPI increased by 4.2% year on year, versus a consensus of only a 3.8% increase. Nevertheless, the Chicago PMI survey came out slightly worse than expected at 56.7 compared with the 57.3 number anticipated. EUR/USD then began rallying sharply on Wednesday after a disappointing U.S. ADP Non-Farm Employment Change number. It showed a decline of -10K that was considerably worse than the expected increase of +20K, while the previous number was also revised downward from 42K to 37K. On a more positive note, U.S. ISM Manufacturing PMI came out at 56.3 versus the 53.2 expected, and ISM Manufacturing Prices increased to 61.5 versus a consensus of only 55.5. Also out on Wednesday, German Retail Sales declined by -0.3% month on month versus an expected increase of 0.6%. On Thursday, the Euro held steady against the Greenback as the ECB kept its benchmark Minimum Bid Rate at 1.00% — as was widely expected. In his speech made after the rate announcement, ECB President Jean Claude Trichet stated that, “Recent economic data for the euro area have been stronger than expected, partly owing to temporary factors. Looking ahead, the recovery should proceed at a moderate pace, with uncertainty still prevailing.” He added that the ECB’s "current monetary policy stance remains accommodative". In addition to its Rate Decision, the European Union announced plans to limit naked short selling of E.U. government debt and stock shares to "ensure that the security can be borrowed so that settlement can be effected." Elsewhere on Thursday, U.S. Initial Jobless Claims came out at 472K — just slightly lower than the consensus of 476K expected —and Pending Home Sales showed a month on month increase of +5.2% that was considerably higher than the decline of -1.3% the market was expecting. Nevertheless, U.S. Factory Orders increased by only 0.1% versus an expected increase of 0.4%, although the previous number was revised significantly upward from -1.2% to -0.6%. EUR/USD continued rallying into Friday, eventually making its weekly high of 1.2896 in spite of news that U.S. Non Farm Payrolls fell by -54K. This number was considerably better than the -101K anticipated, and the previous number was also revised significantly higher from -131K to -54K. In addition, the U.S. Unemployment Rate held steady at 9.6% in line with the market’s expectations. Also on Friday, Eurozone Retail Sales showed an increase of just 0.1% versus an expected 0.3% increase. The rate then went on to close just a pip under its weekly high at 1.2895, up 1.2% on the week.


USD/JPY lost some ground last week despite the August 29th emergency meeting of the BOJ to curb the rise of the Japanese Yen. In the meeting, the BOJ revealed a new six month loan program featuring low interest rates. The central bank also hiked the amount of funding available to banks to ¥30 trillion from ¥20 trillion. Despite these moves by the BOJ, USD/JPY began the week by dropping sharply. The rate initially traded off of its weekly high of 85.88 after the BOJ announced it was leaving its benchmark Overnight Call Rate at 0.10% — as was widely expected. Other Japanese economic releases on Monday included Japanese Retail Sales, which increased by +3.9% year on year versus the +3.6% expected. In addition, Japanese Preliminary Industrial Production gained +0.3% month on month, versus a decline of -0.3% expected. Finally, Japanese Average Cash Earnings showed an increase of +1.3% versus the +0.9% number anticipated. USD/JPY continued its decline into Tuesday, trading down to 83.80 after Japanese Housing Starts showed an increase of 4.3% year on year — a result that was considerably better than the 2.5% consensus. In addition, Japanese Finance Minister Naoto Kan announced an allocation of an additional ¥920 billion in order to stimulate domestic demand and help weaken the Yen. The market was apparently not very impressed since USD/JPY then made its weekly low of 83.65 on Wednesday after the Japanese Monetary Base grew by only 5.4% year on year, versus the consensus of a 6.3% increase. The rate then consolidated somewhat on Thursday in the wake of positive U.S. New Home Sales and Initial Jobless Claims numbers that help support the Greenback. USD/JPY then managed to rally sharply on Friday to 85.21 in response to favourable U.S. employment numbers before selling off just as sharply to close the week at 84.39, and showing an overall decline of 1.1% on the week.

GBP/USD also gave back some territory last week. The rate began the week on a firm note by trading to its weekly high point of 1.5573 on Monday while the United Kingdom celebrated its Summer Bank Holiday. The rate then reversed direction to the downside and made its weekly low of 1.5324 on Tuesday after the release of the U.K. GfK Consumer Confidence survey that came out with a reading of -18 that was considerably better than the consensus of a -23 reading. Also out on Tuesday was U.K. Net Lending to Individuals which gained 0.3B month on month, versus an expected 0.7B rise. Also, U.K. Final Mortgage Approvals came out slightly better than expected at 49K versus the expected 47K. GBP/USD then began rallying sharply on Wednesday after a disappointing U.S. ADP Non-Farm Employment Change number and despite news that U.K. Manufacturing PMI came out at only 54.3 versus a consensus of 57.1, with the previous reading also being revised downward from 57.3 to 56.9. The rate then reversed and began heading south on Thursday after news broke that the U.K. Nationwide PMI had declined by -0.9% month on month, versus an expected decline of only -0.3%. Also contributing to the decline in Cable was U.K. Construction PMI which came out at 52.1 versus the expected 53.5. GBP/USD then rallied on Friday despite U.K. Services PMI coming out at 51.3 and below the expected 53.0 number. The rate eventually closed the week down at 1.5461, showing a modest overall decline of 0.3% for the week.

In spite of a still-uncertain national election result, AUD/USD had the best week of all the major currency pairs overall, as risk appetite returned in force to the currency markets and the price of gold neared its all time high level. Despite gapping up at the Monday open, the pair then traded softer on Monday and into Tuesday after Australian HIA New Home Sales out on Monday declined by -7.0% month on month, versus a previous decline of -5.1. Nevertheless, on the brighter side, Australian Company Operating Profits showed an increase of a whopping +18.9% quarter on quarter that was considerably better than the mere 5.9% increase the market was expecting. In addition, the previous number was revised modestly upward from 3.9% to 4.3%. AUD/USD still continued declining on Tuesday despite news that Australian Building Approvals had increased by 2.3% month on month — significantly better than the decline of -0.6% expected. In addition, Australian Retail Sales had increased by 0.7% month on month, versus the increase of only 0.4% anticipated. Also out on Tuesday was the Australian Current Account which showed a deficit of only -5.6B versus a consensus of a -6.4B deficit. Furthermore, Australian Private Sector Credit increased by only 0.1% month on month, versus an expected increase of 0.3%. AUD/USD then reversed sharply and began a steep rally on Wednesday aided by news that the Australian Labour and Green parties had agreed to form a coalition, thereby increasing former PM Julia Gillard’s chances of achieving a majority. Also fuelling the rally were higher gold prices and news that Australian GDP showed an impressive rise of 1.2% quarter on quarter that was significantly better than the 0.9% increase expected. The previous GDP number was also revised upward from 0.5% to 0.7%. The rate consolidated somewhat on Thursday after the Australian Trade Balance came in showing a surplus of 1.89B that was significantly below the 3.11B consensus and which was compounded by the previous number being revised slightly downward from 3.54B to 3.44B. In addition, the AIG Services Index printed at 47.5 versus a previous reading of 46.6. On Friday, AUD/USD made its weekly high of 0.9173 as risk appetite kept demand for the Aussie high, thereby leaving the rate to close at 0.9166 — showing an overall increase of 1.9% on the week.

USD/CAD lost ground last week as the Loonie benefitted from increased risk appetite in the currency markets, as well as higher gold prices. The rate began the week by rallying sharply after the Canadian Current Account showed a deficit of -11.0B versus a consensus of a -10.2B deficit that was compounded by the previous number being revised downward from -7.8B to -8.5B. Nevertheless, the Canadian RMPI increased by 1.8% that was considerably better than the 0.3% expected. USD/JPY continued trading higher on Tuesday after news that Canadian GDP had increased by 0.2%, as was widely expected. On Wednesday, USD/CAD began dropping sharply after U.S. ADP Non-Farm Employment Change numbers came out considerably worse than expected. USD/CAD then consolidated somewhat on Thursday as U.S. Initial Jobless Claims showed some improvement in the U.S. employment picture. The rate then traded down on Friday despite an encouraging U.S. Non-Farm Payrolls number, as risk appetite permeated the market. USD/CAD eventually ended the week at 1.0390, showing a significant loss of 1.2% versus the previous weekly close.

NZD/USD had a volatile week last week, initially beginning the week on a soft note after the New Zealand Trade Balance came out showing a deficit of -186M that was worse than the expected deficit of -28M by a factor of seven. Also, the previous number was revised down from a surplus of +276M to a surplus of only +214M. Monday also saw the release of the NBNZ Business Confidence survey which came out at 16.4 — considerably lower than the previous reading of 27.9. NZD/USD continued its sharp decline on Tuesday, eventually making its weekly low of 0.6962 after New Zealand Business Consents increased by just 3.1% versus a previous reading of 3.3% that was also revised down from 3.5%. The rate then began rallying sharply on Wednesday as gold neared its all time highs and despite news that ANZ Commodity Prices had fallen by -1.4% month on month against its previous reading of a decline of -0.8%. NZD/USD continued rallying on Thursday and into Friday, eventually making its weekly high of 0.7214 before ending the week a bit lower at 0.7205 and showing an overall gain of 1.2% on the week.

The Week Ahead

USD: The economic data week coming up in the United States cools down considerably this coming week. In terms of data, it features the important U.S. Trade Balance data due out on Thursday. Monday starts the week on a peaceful note as the United States observes the Labor Day Bank Holiday, and Tuesday is also quiet. Accordingly, Wednesday starts the week out with the release of the important Beige Book from the Federal Reserve, as well as Consumer Credit (-4.5B m/m). Thursday offers the highlighted U.S. Trade Balance (-47.4B), as well as the important Initial Jobless Claims number (470K). Friday ends the week with just Wholesale Inventories (0.4% m/m) scheduled for release.

AUD: The coming week of economic data for Australia is about as active as last week, and its releases feature the key RBA Rate Decision and associated Rate Statement scheduled for Tuesday. Monday starts the busy week off with the release of the MI Inflation Gauge (last 0.1% m/m) and ANZ Job Advertisements (last 1.3% m/m). Tuesday then follows with the AIG Construction Index (last 43.3), as well as the highlighted RBA Cash Rate announcement in which the central bank is expected to maintain its benchmark interest rate at the current 4.50% level. The RBA’s associated Rate Statement may also give some guidance as to the current economic situation in Australia. On Wednesday, look for important Australian Home Loans data (1.1% m/m), while Thursday has the closely watched Australian Employment Change (25.3K) and Unemployment Rate (5.2%). In addition, RBA Assistant Governor Guy Debelle will speak in Sydney. That ends the important week since Friday has nothing notable scheduled for release. Technically, AUD/USD softened to 0.8859 early last week before rallying sharply to 0.9173. The rate closed the week just lower at 0.9166. Last week’s price action remained within AUD/USD’s overall up channel that has a rising lower trend line now drawn at 0.8835. Resistance is seen near current levels at 0.9173, above that at 0.9220 and then in the 0.9323/88 region. Support for the rate is indicated in the 0.9115/19, 0.9029/64 and 0.8843/59 regions, and below that at 0.8769.


NZD: The coming week of economic data releases in New Zealand again has rather little to offer in terms of important numbers, but the week does include the release of the Overseas Trade Index on Friday. Monday and Tuesday are quiet, so Wednesday starts the peaceful week with New Zealand Manufacturing Sales (last 0.9% q/q). Thursday has nothing of note due out, and Friday ends the week with the highlighted Overseas Trade Index (2.3% q/q). Technically, NZD/USD softened to 0.6962 early last week before rallying sharply to 0.7214. The rate closed the week a bit lower at 0.7205. Last week’s price action remained above a new upward sloping trend line now drawn at 0.6990 that also goes through the 0.6571 low of June 8th. Support for NZD/USD is now seen on the charts in the 0.7120/75 and the 0.6945/0.7000 congestion regions — the latter being right around the key psychological 0.7000 level — as well as at 0.6885. Resistance shows up at 0.7214, at 0.7264 and in the 0.7341/94 region.



GBP: The week of upcoming economic data releases in the United Kingdom heats up a bit from last week, and features the important BOE Rate Decision and its associated MPC Rate Statement due out on Thursday. Monday has nothing notable scheduled for release, so Tuesday starts the active week off with the BRC Retail Sales Monitor (last 0.5% y/y). The important Halifax HPI (-0.3% m/m) is also scheduled for release on either Tuesday or Wednesday. Wednesday offers the BRC Shop Price Index (last 1.5% y/y), Manufacturing Production (0.3% m/m) and Industrial Production (0.4% m/m). The NIESR GDP Estimate (last 0.9%) is also tentatively due out on Wednesday. Thursday then offers the weekly highlight of the BOE’s Rate Decision in which the central bank is expected to keep its benchmark interest rate unchanged at 0.5% and the Asset Purchase Facility at GBP 200 Billion. The associated MPC Rate Statement is also tentatively due out. Thursday also has the U.K. Trade Balance (-7.5B) scheduled for release. Friday ends the week with the release of the important PPI Input (0.2% m/m) and PPI Output (0.1% m/m) data, in addition to the CB Leading Index (last 0.5% m/m). Technically, GBP/USD sold off early last week as far as 1.5324 — a new recent low — before consolidating above that level and closing the week at 1.5461 on Friday. This close was again just above its 200 day Moving Average that now comes in at 1.5433 and remains downward sloping. Resistance to the topside for GBP/USD shows in the 1.5465/1.5488, 1.5590/1.5616 and 1.5669/1.5711 regions. Support is indicated at 1.5440, in the 1.5324/69 region and at 1.5227.



EUR: The upcoming economic data week in the Eurozone is slightly less active than the previous week, but nevertheless features important data like Thursday’s Monthly Bulletin from the European Central Bank. Sunday starts the week out with a speech by ECB President Trichet in Bucharest. Monday then offers just Sentix Investor Confidence (8.7), while Tuesday only has scheduled German Factory Orders (0.6% m/m). Wednesday has the German Trade Balance (12.8B), the French Government Budget Balance (-61.7B), the French Trade Balance (-4.2B) and German Industrial Production (1.1% m/m). Thursday follows with German Final CPI (0.0% m/m), French Final Non-Farm Payrolls (0.2% q/q) and the weekly highlight of the ECB Monthly Bulletin. Friday ends the week with the release of French Industrial Production (0.8% m/m) and Italian Industrial Production (0.4% m/m). Technically, EUR/USD failed to make a fresh low last week, only dropping as low as 1.2625 on Tuesday. The rate then continued its upward correction to 1.2896 before closing just a tick lower at 1.2895 on Friday. Support for EUR/USD shows at 1.2854, in the 1.2742/76 region, and below that at 1.2660. Resistance to the topside is seen near present levels in the 1.2896/1.2931 and 1.30007/28 regions, and above that at 1.3106.



JPY: The coming week of economic data releases in Japan is roughly as active as the previous week, and features the important Japanese Monetary Policy Statement and associated BOJ Press Conference that are both tentatively scheduled for Tuesday. Monday is quiet, so Tuesday starts the busy week with the tentatively scheduled release of the highlighted BOJ Monetary Policy Statement, along with the Overnight Call Rate (0.10%), and the associated BOJ Press Conference. Also out on Tuesday are Japanese Leading Indicators (98.3%). Wednesday is especially busy and offers Core Machinery Orders (2.0% m/m), Bank Lending (last -1.8% y/y), the Japanese Current Account (1.38T), M2 Money Stock (2.6% y/y), the BOJ Monthly Report, and the Economy Watchers Sentiment survey (50.3). Thursday has scheduled the release of BSI Manufacturing Index (6.3), Household Confidence (43.8) and Preliminary Machine Tool Orders (last 144.9% y/y). Friday ends the busy week with the BOJ Monetary Policy Meeting Minutes, CGPI (-0.2% y/y), Final Japanese GDP (0.4% q/q) and the Final GDP Price Index (-1.8% y/y). Technically, USD/JPY made its weekly high of 85.88 last Monday before selling off sharply to 83.65 — just shy of another new low — and then closing the week at 84.39. Resistance for USD/JPY shows up in the 84.58/64 and 85.21/90 regions, and above that at 86.35. Initial strong support is seen in the 84.71/88 and 83.57/65 regions, and below that at the major 79.75 support level.


CAD: The coming week of economic data due out in Canada heats up considerably from the previous week, and features a variety of important Canadian GDP data, including the BOC’s Rate Decision and associated Rate Statement due out on Wednesday that could well involve another interest rate increase. Monday is quiet due to Canada’s observance of the Labour Day Bank Holiday, and Tuesday also has nothing noteworthy due out. As a result, Wednesday starts the active week with the release of Building Permits (-4.7% m/m) and Ivey PMI (55.9). Wednesday also offers the highlighted BOC Rate Statement in which the central bank is expected to raise its benchmark Overnight Rate by 25 basis points from 0.75% to 1.00%. Thursday then follows with Canadian Housing Starts (185K), the Canadian Trade Balance (-0.8B) and NHPI (0.1% m/m). Friday ends the busy week with the key Canadian Employment Change (23.9K) and Unemployment Rate (8.0%) data. Technically, USD/CAD fell back below the declining upper trend line now drawn at 1.0429 of its apparent descending triangular consolidation pattern last week. The rate traded as high as 1.0669 last Tuesday before selling off sharply to 1.0383 and then closing slightly higher at 1.0390 on Friday. The chart for USD/CAD now shows resistance at 1.0584, in the 1.0665/76 region and above that at 1.0742. Support for the rate shows up in the 1.0441/1.0516, 1.0347/85 and 1.0201/1.0253 regions ahead of psychological support seen at the key 1.0000 parity level.