Key Events to Focus On This Week
- Japanese trade balance
- Bank of Japan (BoJ) Monetary Policy Statement and press conference
- EU Summit
- Ben Bernanke testimony
- Federal Open Market Committee (FOMC) statement
- HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI)
- Euro Zone’s PMIs
- U.S. Markit PMI
Key Events Last Week
- U.S. retail sales advanced to 0.1% MoM in April, setting firm tone of a strong USD last week
- German ZEW slightly increased to 36.4
- Euro Zone entered longest recession after reporting a 0.2% contraction QoQ
- Germany’s Gross Domestic Product (GDP) only grew 0.1% in 1Q, while France’s contracted 0.2%
- Japan’s GDP unexpectedly grew 0.9%% in 1Q
Economic Insights
Greenback rises against its peers
The Greenback rose against all 16 of its most-traded peers last week. A good gauge of its strength is seen in the Dollar Index, which rose to 84.25 at the end of last week, the highest since July 2012. The Intercontinental Exchange uses the Dollar Index to track the Greenback against its six main trading partners.
USD strengthened against ALL the major currencies last week, while U.S. equities reached another record.
Source: Bloomberg, FXPRIMUS
Click the image to enlarge
There are three main reasons for the continued strength of the U.S. Dollar:
Reason #1: Better Reported Figures
U.S. retail sales unexpectedly rose 0.1% in April as U.S. consumers spent more on cars, building materials and apparel. Economists surveyed by Bloomberg expected a figure of 0.3%. Actual figures were much better and reversed a 0.5% drop in March.
The Thomson Reuters/University of Michigan preliminary index of U.S. consumer sentiment climbed to 83.7 in May from 76.4 in April, the highest since July 2007. The index averaged 64.2 during the recession that ended in June 2009, and 89 in the five years prior.
Reason #2: Possible Early Withdrawal of Stimulus
On 16 May, Federal Reserve Bank of San Francisco President John Williams said that quickening economic growth and gains in the job market may prompt the central bank to begin tapering its bond buying as soon as this summer. Williams was one of the first Federal Reserve (Fed) officials to advocate open-ended bond purchases. Philadelphia Fed Bank President Charles Plosser said a week earlier he would favor a June reduction. The Fed currently buys USD85 billion of Treasuries and mortgage-backed securities every month.
Fed Chairman Ben Bernanke is scheduled to speak to the Joint Economic Committee of Congress on 22 May. Minutes of the Fed’s last policy meeting will be released the same day as well.
Reason #3: Better Home Sales Expected
Economists predict that home sales probably rose in April to its highest level in more than three years, extending gains in residential real estate that give the U.S. expansion a lift. Combined purchases of new and existing residences climbed to a USD5.41 million annualized rate last month, the highest since November 2009, according to the median forecast of economists surveyed by Bloomberg ahead of figures from the National Association of Realtors and the Commerce Department.
Housing is a source of strength as borrowing costs near record lows and increasing employment helps rebuild confidence, spur demand, stabilize prices and boost household wealth.
Currency Insights
GBPUSD – resistance at 1.5258
On the hourly chart, the GBPUSD dropped over 420 pips since 9 May. A Fibonacci Retracement is drawn from the swing high of 1.5586 to the swing low of 1.5157. From the chart, the price touched the Fib level of 38.2% and continued trending downwards. A new low was also formed. I expect prices to retrace as some traders take profit, but the downtrend is firm. Hence, I will go short once prices retrace to the 23.6% level.
An entry is taken when prices move upwards to the 23.6% level of 1.5258. A stop loss of 65 pips is placed above the previous high located at the 38.2% level; I do not expect prices to rise above that. I have two targets on this trade, exiting the first position at 1.5193 and the second position at 1.5128.
What do you think? Take my poll:
Previous Market Brief of the Week: Market Brief of the Week for 13 May 2013: G7 Focuses on Japan’s Recovery
