Weekly Forex Currency Review

ADVFN III Weekly FOREX Currency REVIEW   Global Forex News from ADVFN Supplied by advfn.com   New Forex Platform Coming Soon From ADVFN ADVFN has been working behind the scenes on a new forex platform. It features a cutting edge user interface, probabilistic analysis and a new way of looking at forex trades. If you would like to help us develop the product further please click here Weekly Market analysis Overall yield trends and monetary policy will continue to be watched very closely in the short-term. The overall yield structure will remain Euro negative over the next few months. US Federal Reserve policy will remain very important with further dollar gains realistic if there is evidence of the US economy regaining momentum over the next few weeks. The Greek situation will remain an important influence as default and Euro exit is still a very realistic possibility with overall market volatility likely to remain higher.   Key events for the forthcoming week Date Time (GMT) Data release/event Tuesday April 14th 08.30 UK consumer inflation Tuesday April 14th 08.30 US retail sales  Friday April 17th 12.30 US consumer prices Dollar: After confidence deteriorated following the weaker than expected payrolls report, sentiment has stabilised with greater expectations that there will be a recovery as weather conditions improve. There will be further uncertainty surrounding Federal Reserve policy with mixed comments from key officials and a divergence of opinion within the committee. At this stage, markets are still expecting rates to increase this year and a June rate hike is still a possibility which will help underpin the dollar. The US currency will be vulnerable to a correction if there are hints that rate increases will be very limited, especially given the positioning bias, but with strong underlying support on dips.      The dollar was put on the defensive following much weaker than expected headline US employment data, but then regained ground strongly later in the week with the trade-weighted index at three-week highs.   The headline US employment data was certainly much weaker than expected with payrolls increasing 126,000 for March while February’s data was also revised down. Other components were generally firm with unemployment unchanged at 5.5% while there was a bigger than expected 0.3% gain for earnings. There was a further paring of expectations surrounding a US rate increase. Job-openings data was stronger than expected with an increase to a record high of 5.13mn for February from a revised 4.97mn previously with a firm reading for US services.   Federal Reserve policy remained an important focus with ultra-dove Minneapolis President Kocherlakota maintaining his opposition to any tightening of monetary policy this year. New York Fed President Dudley took a slightly more hawkish policy tone. Although he stated that the data could push back the potential timing of any interest rate increase, he also stated that the Fed was not taking any huge signal from the weaker than expected March payrolls data. The Fed minutes as a whole were slightly more hawkish than had been expected with suggestions that the balance of forces on the committee was closer than expected. Several members wanted an interest-rate increase in June while others wanted to wait longer and later into 2015. The committee was more optimistic that labour-market improvements, a stabilisation in energy prices and a levelling out of the dollar were seen as helpful in establishing confidence that inflation would turn up. There were also potentially important comments that the rate normalisation process could be initiated before seeing any increase in core inflation or wage inflation. Latest US jobless claims data was slightly stronger than expected with an increase to 281,000 in the latest week from a revised 267,000 which underpinned confidence in the labour market as the four-week moving average declined to the lowest since 2000. The fastest growing market in London... Introducing The Oratory Apartments in London's regeneration programme. With Zone 3 prices 41% lower than Zone 2, this exclusive off-market Crossrail investment opportunity is one not to be missed. Click here to find out more and see why Canning Town is about to boom! Euro Overall Euro-zone growth prospects should remain firmer as the expansionary ECB monetary policy and decline in bond yields continue to have a positive impact. The central bank will maintain the bond-buying programme and the overall yield structure will continue to encourage aggressive capital outflows which will undermine the Euro. The Greek situation will remain an important focus with failure to reach a reform deal and a continued liquidity tightening in Greece increasing speculation that the country will be forced to leave the Euro. Overall currency volatility is likely to remain significantly higher with the potential for a sharp position squeeze at times. The Euro was unable to sustain a move above 1.1000 against the dollar and then dipped sharply over the second half of the week with lows near 1.0600 There was a constructive tone in PMI services-sector data for Germany, Spain and Italy, but final data for the Euro-zone as a whole edged slightly lower from the flash index. Similarly, there was a slightly smaller than expected gain for the Sentix investor confidence index, although at the highest since the middle of 2007. There was a further demand for Euro-zone bonds as German benchmark 10-year yields dipped to fresh record lows around 0.15% while all maturities up to 8 years were showing negative yields. There was further evidence of the Euro being used as a global funding currency while bond issuance in Euros is also increasingly rapidly which will also tend to weaken the Euro. As Euro-zone yields declined, there was also a widening in yield differentials in the dollar’s favour. Immediate Greek tensions remained slightly lower as the scheduled IMF payment was made. There were still very important underlying tensions with the Euro working group stated that no significant progress had been made. There was also some degree of nervousness surrounding the Greek Easter holiday period given some fears over capital controls being introduced. Although the ECB sanctioned a further increase in ELA funding, the bank failed to meet Greek demands as deposit outflows continued.   Yen:    The Bank of Japan will maintain an expansionary monetary policy throughout the next few months. The bank will look through lower inflation triggered by falling oil prices, but will still be under pressure to take further aggressive action. Global yield trends will remain important with the further decline in Euro-zone and US yields providing net yen support. The Japanese currency will also gain some support when global risk appetite deteriorates. Net capital outflows are likely to strengthen over the next few weeks which will tend to undermine the Japanese currency and medium-term losses remain likely. The yen was broadly resilient on the crosses during the week, but there were three-week losses against the US currency back beyond 120.00 later in the week.   As expected, there was no policy change from the Bank of Japan despite a lowering of inflation forecasts with the JPY80trn in annual bond purchases retained. Kiuchi dissented from the decision and called for a tapering of purchases. There were comments from Bank of Japan Governor Kuroda that the bank was more confident surrounding inflation expectations which would lessen the need for any further policy stimulus even if there was lower than expected reported inflation. The rhetoric dampened expectations over a further expansion of monetary policy. The latest capital-account data recorded sharp net bond flows back to Japan in the latest week, potentially due to year-end pressures. Outflows should increase over the next few weeks, but  the yen will tend to be resilient if outflows do not increase. 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A further policy relaxation still looks unlikely, but increases could be delayed further eroding yield support.    Sterling was on the defensive against the dollar over the second half of the week and moved towards five-year lows below 1.4700 with no major changes against the Euro. The US$70bn Royal Dutch Shell bid for BG was a significant factor temporarily supporting the currency on expectations of merger-related Sterling inflows. The latest PMI services index was stronger than expected with an increase to 58.9 in the latest week from 56.7 previously which was the strongest level since August 2014. There was a 2.1% annual decline in UK shop prices, maintaining underlying deflationary pressures in the sector. Latest trade data was weaker than expected with a GBP10.3bn goods deficit for February while January’s deficit was revised sharply higher to GBP9.3bn. The export performance was weaker at a four-year low. There was no Bank of England surprise with interest rates left on hold at 0.50%, confirming that there will be no change during this government’s term of office. There were further concerns surrounding the UK general election outcome with a further increase in Sterling volatility while there was also significant activity in the options markets as funds looked for protection. Opinion polls suggested no decisive outcome, but potential gains for the opposition labour party. There was wariness over a potentially extended period of uncertainty and hedging will increasingly undermine the spot rate. There were increased concerns that a wider trade deficit would increase overall Sterling vulnerability on any exodus of overseas funds. Swiss franc: Greek developments will be watched very closely in the short-term and any further increase in tensions could trigger renewed capital flows into the Swiss currency. A Greek Euro exit could lead to a surge in franc demand, at least in the very short-term. The economy will remain weak in the short-term, but the National Bank will be very reluctant to cut interest rates further. There will also be speculation over further central bank intervention to curb franc gains. Volatility is likely to remain a key short-term feature. The franc maintained a firm tone against the Euro during the week while the dollar eventually moved higher to a peak near 0.9800. Underlying currency volatility remained higher which will maintain a reluctance to recycle the current account surplus into overseas assets which would help underpin the Swiss currency. The latest consumer inflation data recorded a 0.9% decline in the year to March, the weakest rate for three years, although this was slightly higher than expected, easing deflation fears to some extent. The latest reserves data registered a further increase to record highs at CHF522.9bn for March from CHF508.9bn previously which continued to suggest National Bank intervention even allowing for valuation effects. Join over 1000 Top Finance professionals in the forex industry's most important event. Forex Magnates London Summit 2014, Nov 18-19, Reserve your seat today! Click Here Australian dollar The Australian dollar proved more resilient during the week with solid support on dips against the US currency and a move to the 0.77 area despite wider US strength. There were still concerns surrounding low commodity prices as iron-ore prices came under further pressure. The retail sales report was stronger than expected with slightly firmer PMI readings overall. The Reserve Bank left interest rates on hold at 2.25% while maintaining that rates could be cut again if necessary. The Australian dollar could be more resilient in the very short-term, but will find it very difficult to make sustained gains given overall weakness in commodity prices. Canadian dollar: The Canadian dollar was again subjected to high volatility. The currency initially made gains as oil prices recovered ground and briefly spiked to beyond 1.2400 against the US currency. There was then a sharp reversal and move back to around 1.2600 as energy prices fell and the US currency found widespread buying support. The economic data releases were generally disappointing with the PMI index remaining below the 50.0 level while there was another decline in building permits. There are likely to be further concerns surrounding the domestic economy. There will be vulnerability against the US dollar, although overall losses should be measured. Indian rupee: The rupee was little changed for the week as a whole, with pressure over the second half from a stronger US currency countering initial gains. In this context, there were continuing fears surrounding regional markets with the Reserve Bank also under pressure to maintain competitiveness. Moody’s revised India’s credit rating to positive from stable which boosted confidence and there was further optimism surrounding capital inflows. The Reserve Bank left interest rates on hold despite expectations of further easing this year. Although overall confidence in the domestic economy and rupee should hold firm, there is little scope for currency gains given global trends and Fed policies. PROVEN Trading Strategy - Currently running at 70% success rate Earn a tax free income trading, from just 20 minutes a day – no experience needed.  Our powerful trading software will help you decide when to enter trades and how to maximise profits. Register for a FREE brochure and trading guide, Click Here.  Hong Kong dollar The Hong Kong dollar maintained a firm tone during the week and touched the 7.7500 strongest limit. The HKMA was forced to intervene to defend the peg limit with US dollar buying of US$400mn on Thursday. The local currency was boosted by strong gains for the local stock market which attracted capital inflows with the Hang Seng index at a seven-year high. Short-term capital inflows will tend to strengthen the Hong Kong dollar with further intervention possible, but longer-term flows are likely to be less favourable.   Chinese yuan: The yuan was again broadly resilient for much of the week before dipping to beyond 6.21 against the dollar on wider US gains. There were expectations that the PBOC would continue to discourage more than limited yuan losses to deter speculation against the Chinese currency with particular hostility towards global short sellers. CPI data was marginally higher than expected with no major market impact. There were further important concerns surrounding the economy with expectations of further losses within the property sector and concerns over a stock-market bubble.   Although the PBOC will continue to resist more than limited short-term yuan losses, the overall economic dynamics will be increasingly negative for the currency.   New ADVFN Service - FREE Reports Get your free report on Isa's, Investment Trusts, Funds, Sipps Travel and Cars - FREE and Easy service CLICK HERE     To unsubscribe from this news bulletin or edit your mailing list settings click here. Registered Office/Accounts Dept: Suite 27, Essex Technology Centre, The Gable, Fyfield Road, Ongar, CM5 0GA. Customer Support +44 (0) 207 0700 961. Company registered in England and Wales: Number 2374988 VAT No. GB 549 2130 49