Currency market weekly review (September 30 - October 04, 2013)
Euro: The Euro was supported by the speech of Mario Draghi who stated that the euro zone’s financial system does not need additional assistance programs. It was a bit surprise for some analytics as a week earlier, he did not rule out the possibility of another round of LTRO to supplement the short-term liquidity of commercial banks. The Euro took an advantage of the weak dollar and the EUR / USD pair hit the $1.3650 level.
Monday: The EUR / USD pair fell to $ 1.3475 during the Asian session. The report from the Statistical Office Eurostat showed that in the month of September the annual rate of inflation in the euro zone fell to its lowest level in three and a half years, which suggested that the European Central the bank has an opportunity to postpone for a while region's economy stimulus, if it would be necessary. The EUR / USD pair is trading during the European session traded in a narrow range with no particular trend. The euro edged higher against the U.S. dollar despite the political tensions in Italy against the background of some improvement of risk sentiment. Talks about the fact that the Italian senators from PdL party could support the Prime Minister Enrico Letta, circulated among the market participants and positively affected the dynamics of the euro. The Fitch agency issued a statement on the situation in Italy, warning that if on Wednesday at the voting the government of Enrico Letta will not receive a vote of confidence, the financial goals of the country might be jeopardized.
Tuesday: The euro traded higher against the dollar gaining back its previous losses. The initial driver for the growth of European currency was the fact that the U.S. Senate refused to accept the budget law, as amended Republicans. The data for Germany showed that by the end of last month, the number of people who registered as unemployed has increased significantly. The issue added a little pressure on the euro, as the result was contrary to the expectations of experts. According to the report, the seasonally adjusted number of unemployed rose in September by 25K people, compared with the upwardly revised figure of 9K of previous month. According to the average forecasts of experts the value of this indicator should has came out down by 5K. Also negatively impacted the currency the report, which showed that by the end of September the euro area manufacturing sector continued to expand, albeit at a slower pace than it was seen in the previous month. The purchasing managers' index for the sphere of production fell in September to a level of 51.1, compared with 51.4 in August which was in line with the preliminary estimates released last month. The EUR / USD pair rose to $ 1.3590, and then fell to $ 1.3535 during the European session.
Wednesday: The European single currency rose sharply against its competitors on the background of the speech of the ECB President Mario Draghi at the press conference as well as after the a vote of confidence was obtained by the government of Italian Prime Minister Mr. Letty. At a press conference, the ECB decided to leave rates unchanged at 0.5 % in October, saying that the rates will be left at this level or even lower for a long time. The Central Bank will keep accommodative policy to support economic activity in the eurozone.
Gold: Amid weakening dollar and stronger euro the gold prices rebounded from a two-month low. The cost of the October gold futures rose to $ 1323.30 per ounce on COMEX .
Thursday: The euro edged higher against the U.S. dollar to eight-month high against the evidence that the index of business activity in the U.S. service sector dropped significantly. The EUR / USD pair rose to $ 1.3650 during the session.
US Dollar: The U.S. dollar was under moderate pressure during the period of last week where the political drama around the U.S. government funding and the Obamacare program remained in the spotlight. The PMI indices in industry and the services sector continued their growth in September, but the service sector has slowed down.
Monday: The dollar fell to a month low against the yen after the U.S. Senate has not held its meeting yesterday, and brought it to on Monday. The meeting will consider the law on the refinancing of the government budget commitments which have to pass the House of Representatives.
Tuesday: The dollar fell against the pound to the lowest level since January 3 after the U.S. Senate refused to accept the budget law, as amended Republicans. Document against 54 senators voted for - 46. Earlier, the lower house for the third time this week returned the bill to the Senate. The U.S. dollar reduced losses against the euro and other currencies after strong data on manufacturing activity and on expectations that the suspension of the federal government will be short-lived. According to the Institute for Supply Management (ISM) the reports published on Tuesday increased activity in the U.S. manufacturing, which unexpectedly accelerated in September reached its highest level this year amounting to 56.2 against 55.7 in August. The employment prospects have improved as the ISM data, index valued by Markit is above 50 levels, which indicates an increase in activity.
Wednesday: The pressure on the dollar strengthened after data showed that the number of jobs in the private sector in September rose less significant than it was expected. Accordingly report of ADP, the number of jobs increased by only 166K position last month.
Thursday: The dollar fell to eight-month low against the euro amid the ongoing U.S. government shutdown. This fact will lead to slower economic growth in the country and can be a signal for a possible expansion of quantitative easing program, which will undoubtedly have a negative impact on the U.S. currency. The U.S. dollar weakened against most major currencies except the pound, on the extension of shutdown of the U.S. government. Besides, the index of business activity in the U.S. service sector dropped significantly. The Institute for Supply Management (ISM) announced that in September, the index of business activity in the U.S. service sector sharply fell reaching at the level of 54.4, compared with the August reading of 58.6 on the mark. According to expert estimates, the value of this indicator should have been only reduced to 57.2 .The greatest pressures exerted on the growth of the sub- index of employment and business activity. Also, the sub- index of new orders showed a slight decrease. The growth was noticed only in the sub-index of prices.
In addition, the report of the Ministry of Labour showed that by the end of last week, the number of American workers who first applied for unemployment benefits rose slightly, but remained near six-year low. According to the report, the seasonally adjusted number of initial claims for benefits for the week ending Sept. 28, an increase of 1 million people, reaching at the same level of 308,000 people. The result was significantly better than the forecasts of experts who had expected growth to 315K from 305K, which was originally reported last month.
British Pound: The British pound was feeling insecure this week; the GBP / USD pair fell on signs of “overbought " losing 0.45 % of the previous week close. The data on the PMI indices in industry, construction and services sectors in the UK generally were in line with market forecasts.
Monday: The pound fell against the dollar, as many market participants were waiting for tomorrow's publication of the results of the index of manufacturing activity PMI, which accordingly the forecasts of economists, will rise to two-year high in September and will reach 57.5. Meanwhile, 's data showed that the business lending in August fell to ?3.8 billion dropping during last six months by more than three times then its average decline. Compared with a year earlier the loans declined by 3.6%. The volume of loans to small and medium-sized companies fell by 3.2% compared to the same period of time. The GBP / USD pair dropped to $ 1.6125 during the European session.
Tuesday: The British pound strengthened against the dollar, also responding to the shutdown of work of the U.S. government. The dynamics of currency trading were not impacted by the results of report on seasonally adjusted purchasing managers' index for the manufacturing sector, which demonstrated the fall in the last month to the level of 56.7. The economists had expected this indicator will rise to the level of 57.5 in September. Meanwhile, the other data showed that the volume of new orders in the manufacturing sector continued to grow strongly, with significant contribution from the domestic market. In order to cope with the increased workload, many companies significantly increased its staff showing the fastest pace since May 2011. The GBP / USD pair rose to $ 1.6265 during the European session.
Wednesday: The pound did not even consider the weak data on the UK, which showed that up to September growth in the UK construction sector unexpectedly slowed. According to the report, the purchasing managers' index for the construction sector fell in September to a level of 58.9, up from 59.1 in August, which was the highest figure in six months. The experts were forecasted a rise to the level of 60.1. However, despite the decline, the index remains above the 50 mark for the fifth consecutive month, signaling a dramatic expansion of the total production in the construction sector. The other data showed that all three of the construction sector recorded a higher level of activity in September. Residential construction was the strongest, and the production growth was the fastest since November 2003 .The commercial construction , meanwhile, increased by the highest rate since May 2012 , and the growth of civil construction activity fell , retreating from the August high .The GBP / USD pair rose to $ 1.6230 during the European session.
Thursday: A bit support for the pound was provided by the data on activity in the services sector of UK economy. As it became known, the activity of in this key sector of the British economy in September has remained its maximum marks, although decreased to 60.3 compare the 60, 5 in August. The economists had expected a decline to 60.4. The data also shown, that the index of activity in all sectors of the economy grew up in the 3- m quarter of up to 15 -year-old a maximum, that gave grounds to hope of growth of GDP in the quarter by 1.2 % . The GBP / USD pair fell to $ 1.6180 level during the European session.
Japanese Yen: The Japanese yen was in demand as a traditional defensive asset. The pair USD / JPY came closer to the important support level of Y96.80 as the outcome of the meeting of the central bank of Japan did not bring any change in its monetary policy.
Monday: The yen rose against all major currencies and reached a three-week high against the euro amid growing demand for safer assets related to the possible dissolution of the Italian government. The USD / JPY pair fell to Y97.54 during the European session.
Tuesday: The yen fell after report on the level of confidence among large manufacturers in Japan rose to the highest level since the time of onset of the global credit crisis in 2007. The Bank of Japan's Tankan index of activity in the sector of large manufacturers rose in September to 12 points level, compared to 4 in June. The USD / JPY pair traded near the of Y98.00 level .
Wednesday: The Japanese yen has increased significantly against the dollar, which was due to concerns about the U.S. budget, which continues to put pressure on market sentiment. The USD / JPY pair continued to fall for the second day in a row, having lost about 150 points after peaked at Y98.72 before the U.S. announced to stop the government's work.
Australian dollar: The Australian dollar found support after the Reserve Bank of Australia gave positive assessment of the prospects for the Australian economy and left interest rates unchanged. The pair AUD / USD pair has strengthened while taking advantage of the weak dollar.
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