LAST WEEK’S CURRENCY TRADING REVIEW

The Dollar managed to stall the recent losses against the Euro but lost more ground against riskier currencies as stock markets tested highs around the world. The break above 10000 on the Nikkei helped most Yen crosses to test fresh year highs. US retail sales were at expectations of 0.5% in May. Also June Consumer Sentiment increased to 69 vs. 68.7 previously. Oil broke above $70 a barrel for the first time this year. The Euro couldn’t muster fresh gains this week as the USD received broad support from its status as reserve currency around the world. Multiple Finance minister have offered there support both for the USD and US bonds in the past week. Industrial Production (April) dropped 1.9% vs. -1.4% previously. The EUR/USD gained 0.33% closing at 1.4016, after opening the week at 1.3970.


The Japanese Yen couldn’t break past 99 Yen but did mange new highs on the AUD/JPY and GBP/JPY as the carry trade roared back on commodity gains. Final Q1 GDP was upgraded to -3.8%. The GBP rebounded well after Political concerns faded. EUR/GBP traded at fresh year lows. Manufacturing Production gained 0.2% vs. -0.1% forecast.GBP/USD gained 2.82% closing at 1.6442 after opening at 1.5978. The AUD surged ahead as Unemployment numbers of -1.7K beat forecasts of -30k and commodities rallied. Consumer Confidence surged the most in 22 years up 12.7%. The AUD/USD closed up 2.36% at 0.8122 after opening at 0.7930.



The forex trading week preview



In the States; on Monday, TIC Flows (April) previously at 23.2BN. On Tuesday, PPI (May) forecast at 0.6% m/m. Also released, May Housing starts are forecast at 485K whilst building permits (May) is forecast at 500K. May Industrial Production is forecast at -0.9% vs. -0.5% previously. On Wednesday CPI (May) are forecast at -0.9% vs. -0.7%. On Thursday, weekly Jobless Claims are forecast at 610K vs. 601K previously. We will provide our previews and reviews of these data releases in the daily summary.



In the Eurozone; On Tuesday, German Zew Survey forecast at 35 vs. 31 previously. On Wednesday, Trade Balance is forecast at -1.5Bn in April. On Friday, German PPI (May) is forecast flat vs. -1.4% previously m/m. In the UK; On Tuesday, CPI (May) is forecast at 2.0% y/y vs. 2.3% previously. On Wednesday, BOE minutes released along with ILO Unemployment Rate (April) forecast at 7.35 vs. 7.1% previously. On Thursday, Retail Sales (May) forecast at 0.3% vs. 0.95 previously. We will provide our previews and reviews of these data releases in the daily summary.


In Japan;

On Tuesday, BOJ meet and are forecast to hold at 0.1%.On Friday, BOJ minutes form the meeting released. We will provide our previews and reviews of these data releases in the daily summary.

In Australia;

RBA minutes on Tuesday the highlight. We will provide our previews and reviews of these data releases in the daily summary.


Euro – 1.3970
Initial support at 1.3793 (May 28 low) followed by 1.3728 (May 21 low). Initial resistance is now located at 1.4178 (Jun 11 high) followed by 1.4267 (Jun 5 high)



Yen – 98.15
Initial support is located at 97.09 (Jun 5 low) followed by 96.52 (Jun 2 low). Initial resistance is now at 98.89 (May 7 high) followed by 99.74 (April 13 high).



Pound – 1.6380
Initial support at 1.6242 (Jun 10 low) followed by 1.6041 (Nov 6 low). Initial resistance is now at 1.6662 (Jun 3 high) followed by 1.6739 (61.8% retrace).



Australian Dollar – 0.8075
Initial support at 0.7968 (Jun 8 low) followed by the 0.7828 (Jun 10 low). Initial resistance is now at 0.8263 (Jun 3 high) followed by 0.8378 (Sept 26 high).



Gold – 937


Initial support at 936 (May 21 low) followed by 925 (May 20 low). Initial resistance is now at 965 (Jun 5 high) followed by 983 (June 3 high).

Last week’s currency trading review

The Dollar continued to be sold off in a broad based fashion after key levels on multiple currencies was breached. South Korean state pension fund exacerbated the negative mood stating that it was planning to reduce exposure to US treasuries. Also hurting was talk that the next BRIC meeting of the world’s biggest commodity bloc will consider de-dollarization as part of its agenda. Q1 GDP was revised lower to -5.7% vs. -6.1%. The Euro broke above 1.4000 and held the gains well into the weekend. Risk appetite and USD weakness the main catalyst in the move higher with EUR/JPY enjoyed good gains. German IFO improved to 84.2 vs. 83.7 previously and CPI came in flat 0.0% y/y in May. The EUR/USD gained 1.15% closing at 1.4159, after opening the week at 1.3996.

The Japanese Yen was even weaker than the USD as stock market gains helped encourage investors to sell the low yielding Yen. Jumps in Long term US interest rates help to keep the pair buoyant as did fresh gains on most of the crosses with GBP/JPY touching new year highs above 150 Yen. The USD/JPY gained 0.46% closing at 95.21 after opening at 94.77. The GBP continued higher against the dollar but also made fresh lows against the Euro as the riskier currency got more support during the week. A break of 0.8500 in the EUR/GBP could provide fresh selling towards 0.8000. GBP/USD gained 1.61% closing at 1.6188 after opening at 1.5927. The AUD broke above the key psychological level of 0.8000 as the pair received support form heavy AUD/JPY gains and commodity markets continued to surge. Q1 Capex fell -8.9% vs. -6.0% forecast. The AUD/USD closed up 2.31% at 0.8010 after opening at 0.7825.

The forex trading week preview

In the States; big data week with Nonfarm Payrolls on Friday the Highlight. On Wednesday, ADP Unemployment Report forecast at -530K vs. -491k previously. Also on Wednesday, Non-manufacturing ISM forecast at 45 vs. 43.7 previously. On Friday, Non Farm Payrolls are forecast at -530K vs. -539K previously. Unemployment Rate is forecast at 9.2% vs. 8.9%. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone; On Wednesday, EUGDP is forecast to unrevised at -2.5% in Q1. EU PPI is forecast at -0.8% m/m in April. On Thursday the ECB meet and are forecast to hold at 1.00% although the market will be listening to Trichet closely in the press conference afterwards.

In the UK; On Wednesday, PMI services are forecast at 49.4 vs. 48.7. On Thursday, BOE rate announcement widely expected to hold at 0.5%. Last meeting they did expand the QE program with negative implication for the GBP. We will provide our previews and reviews of these data releases in the daily summary.

In Japan; Q1 Capex is forecast at -27.1% vs. -17.3% previously. We will provide our previews and reviews of these data releases in the daily summary.

In Australia; RBA meeting on Tuesday forecast to hold at 3.0% and Q1 GDP forecast at 0.2% vs. -0.5% previously. We will provide our previews and reviews of these data releases in the daily summary.

TECHNICAL COMMENTARY


Euro – 1.4170

Initial support at 1.3926 (May 29 low) followed by 1.3793 (May 28 low). Initial resistance is now located at 1.4364 (Dec 29 high) followed by 1.4621 ()

Yen – 96.40

Initial support is located at 94.43 (Mar 25 low) followed by 93.52 (Mar 19 low). Initial resistance is now at 97.24 (May 28 high) followed by 98.82 (May 11 high).

Pound – 1.6455

Initial support at 1.5855 (May 28 low) followed by 1.5757 (May 22 low). Initial resistance is now at 1.6497 (June 1 high) followed by 1.6672 (Oct 30 high).

Australian Dollar – 0.8105

Initial support at 0.7803 (May 26 low) followed by the 0.7703 (May 29 low). Initial resistance is now at 0.8152 (76.4% retrace 0.8814 to 0.6009) followed by 0.8378 (Sep 26 high).

Gold – 976

Initial support at 959 (May 29 low) followed by 941 (May 26 low). Initial resistance is now at 1006 (Feb 20 high) followed by 1032 (Mar 17 high).

Forex Trading Articles

How Interest Rates Play a Role in the Currency Markets

Interest rates play the foremost important role in moving the prices of currencies in the Forex market. As the institutions that set interest rates, central banks are therefore the most influential factors. Interest rates dictate flows of investment. Since the currencies are representations of a country’s economy, differences in interest rates affect the relative worth of currencies in relation to one another. When central banks change interest rates they cause the Forex market to experience movement and volatility. In the realm of Forex trading, accurate speculation of central banks’ actions can enhance the trader's chances for a successful trade.

An increase in interest rates encourages traders to invest within that market and causes the demand for the currency to rise. As demand rises, the currency becomes scarcer and consequently more valuable. Investors are drawn to the currency, causing it to appreciate, because they will gain a higher yield on their investments, as in the Jane example. In order to purchase the country's assets (stocks or bonds), Jane will have to convert her domestic currency to the target country's currency also increasing demand. Conversely, a fall in interest rates discourage investors from purchasing assets in that particular economy, as the return on their investment is now smaller. The economy's currency will depreciate as a result of the weaker demand.