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The Australian dollar ended Friday’s session at a three-week low against its U.S. counterpart, as heightened tensions between Russia and Ukraine dampened demand for riskier assets.
AUD/USD fell to 0.9252 on Thursday, the pair’s lowest since April 4, before subsequently consolidating at 0.9269 by close of trade on Friday, up 0.06% for the day but 0.68% lower for the week.
The pair is likely to find support at 0.9230, the low from April 4 and resistance at 0.9301, the high from April 24.
Concerns over the conflict between Russian and Ukraine escalated on Friday after U.S. Secretary of State John Kerry warned that Washington was ready to step up economic sanctions against Russia.
Meanwhile, ratings agency Standard & Poor’s cut its rating on Russia on Friday, citing the potential for “additional significant outflows” of capital due to escalating hostilities with Ukraine.
The West is accusing Russia of leading a separatist revolt in eastern Ukraine after it annexed Crimea last month.
Market players also continued to monitor U.S. data for further indications on the strength of the economy and the future course of monetary policy.
Data on Friday showed that consumer confidence rose to a nine-month high in April, adding to signs that the economy is improving.
The University of Michigan reported that its consumer sentiment index came in at 84.1 this month, up from 80 in March and the preliminary reading of 82.6. Analysts had expected the index to rise to 83.0.
Elsewhere, in Australia, data released earlier in the week showed that consumer price inflation in Australia rose 0.6% in the first quarter, below expectations for a 0.8% increase, after a 0.8% rise in the three months to December.
Data from the Commodities Futures Trading Commission released Friday showed that speculators increased their bullish bets on the Australian dollar in the week ending April 22.
Net longs totaled 16,370 contracts, compared to net longs of 8,097 in the preceding week.
In the week ahead, investors will be looking ahead to Wednesday’s monetary policy announcement by the Federal Reserve amid speculation the central bank is likely to continue to scale back its stimulus program.
The U.S. will also release the monthly non-farm payrolls report for April later in the week as well as a preliminary estimate on first quarter economic growth.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, April 28
- The U.S. is to release private sector data on pending home sales.
Tuesday, April 29- The U.S. is to a report compiled by the Conference Board on consumer confidence.
Wednesday, April 30- The U.S. is to release preliminary data on first
quarter GDP, as well as the ADP report on private sector job creation,
which leads the government’s nonfarm payrolls report by two days. The
U.S. is also to release data on manufacturing activity in the Chicago
region.
- Later Wednesday, the Federal Reserve is to announce its federal funds rate and publish its rate statement.
Thursday, May 1- China is to release official data on manufacturing activity. The Asian nation is Australia’s biggest trade partner.
- The
U.S. is to publish the weekly report on initial jobless claims. At the
same time, Fed Chair Janet Yellen is to speak at an event in Washington;
her comments will be closely watched.
- Later Thursday, the Institute of Supply Management is to release a report on manufacturing activity
Friday, May 2The U.S. dollar pushed higher against the Canadian dollar on Friday as renewed concerns over hostilities between Russia and Ukraine fuelled risk aversion, dampening demand for the Canadian dollar.
USD/CAD ended Friday’s session at 1.1038, up modestly from Thursday’s close of 1.1019. For the week, the pair eked out a gain of 0.17% in rangebound trade.
The pair was likely to find support at 1.0999, the low of April 22 and resistance at 1.1075.
Concerns over the conflict between Russian and Ukraine escalated on Friday after U.S. Secretary of State John Kerry warned that Washington was ready to step up economic sanctions against Russia.
Meanwhile, ratings agency Standard & Poor’s cut its rating on Russia on Friday, citing the potential for “additional significant outflows” of capital due to escalating hostilities with Ukraine.
The West is accusing Russia of leading a separatist revolt in eastern Ukraine after it annexed Crimea last month.
The pair traded in a relatively narrow range all week, with the greenback supported by indications that the U.S. economy is recovering. The loonie, as the Canadian dollar is also known, remained softer as the Bank of Canada’s dovish stance weighed.
In a speech on Thursday, BoC Governor Stephen Poloz said interest rates will stay low for longer, while inflation will remain below the central bank’s 2% target for at least another two years.
In the U.S., data on Friday showed that consumer confidence rose to a nine-month high in April, adding to signs that the economy is improving.
The University of Michigan reported that its consumer sentiment index came in at 84.1 this month, up from 80 in March and the preliminary reading of 82.6. Analysts had expected the index to rise to 83.0.
In the week ahead, investors will be focusing on Friday’s U.S. jobs report for April and the outcome of the Federal Reserve’s two-day policy meeting on Wednesday. Wednesday’s Canadian data on economic growth will also be closely watched.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, April 28
- The U.S. is to release private sector data on pending home sales.
Tuesday, April 29- The U.S. is to a report compiled by the Conference Board on consumer confidence.
- Later Tuesday, BoC Governor Stephen Poloz is to speak; his comments will be closely watched.
Wednesday, April 30- Canada is to publish the monthly report on gross
domestic product, the broadest indicator of economic activity and the
leading measure of the economy’s health.
- The U.S. is to
release preliminary data on first quarter GDP, as well as the ADP
report on private sector job creation, which leads the government’s
nonfarm payrolls report by two days. The U.S. is also to release data on
manufacturing activity in the Chicago region.
- Later in the day, the Federal Reserve is to announce its federal funds rate and publish its rate statement.
Thursday, May 1- The U.S. is to publish the weekly report on initial
jobless claims. At the same time, Fed Chair Janet Yellen is to speak at
an event in Washington; her comments will be closely watched. Later
Thursday, the Institute of Supply Management is to release a report on
manufacturing activity.
Friday, May 2The dollar ended the weak lower against the firmer Swiss franc on Friday as escalating tensions over the crisis in eastern Ukraine underpinned demand for traditional safe-haven assets.
USD/CHF ended Friday’s session at 0.8814 after falling to one-week lows of 0.8803 earlier and ended the week down 0.42%.
The pair was likely to find support at 0.8775 and resistance at 0.8855, Thursday’s high.
Concerns over the conflict between Russian and Ukraine escalated on Friday after U.S. Secretary of State John Kerry warned that Washington was ready to step up economic sanctions against Russia.
Meanwhile, ratings agency Standard & Poor’s cut its rating on Russia on Friday, citing the potential for “additional significant outflows” of capital due to escalating hostilities with Ukraine.
The West is accusing Russia of leading a separatist revolt in eastern Ukraine after it annexed Crimea last month.
In the U.S., data on Friday showed that consumer confidence rose to a nine-month high in April, adding to signs that the economy is improving.
The University of Michigan reported that its consumer sentiment index came in at 84.1 this month, up from 80 in March and the preliminary reading of 82.6. Analysts had expected the index to rise to 83.0.
In the week ahead, investors will be focusing on Friday’s U.S. jobs report for April and the outcome of the Federal Reserve’s two-day policy meeting on Wednesday. Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, April 28
- The U.S. is to release private sector data on pending home sales.
Tuesday, April 29- The U.S. is to a report compiled by the Conference Board on consumer confidence.
Wednesday, April 30- Switzerland is to publish its KOF economic barometer.
- The
U.S. is to release preliminary data on first quarter GDP, as well as
the ADP report on private sector job creation, which leads the
government’s nonfarm payrolls report by two days. The U.S. is also to
release data on manufacturing activity in the Chicago region.
- Later Wednesday, the Federal Reserve is to announce its federal funds rate and publish its rate statement.
Thursday, May 1- Markets in Switzerland are to remain closed for the Labor Day holiday.
- The
U.S. is to publish the weekly report on initial jobless claims. At the
same time, Fed Chair Janet Yellen is to speak at an event in Washington;
her comments will be closely watched. Later Thursday, the Institute of
Supply Management is to release a report on manufacturing activity.
Friday, May 2The euro was little changed against the dollar on Friday as concerns over heightened tensions in eastern Ukraine and the possibility of fresh stimulus measures from the European Central Bank weighed.
EUR/USD ended Friday’s session at 1.3833 after touching session highs of 1.3848. For the week, the pair gained 0.30%.
The pair was likely to find support at 1.3790, Thursday’s low and resistance at 1.3863, the high of April 17.
Concerns over the conflict between Russian and Ukraine escalated on Friday after U.S. Secretary of State John Kerry warned that Washington was ready to step up economic sanctions against Russia.
Meanwhile, ratings agency Standard & Poor’s cut its rating on Russia on Friday, citing the potential for “additional significant outflows” of capital due to escalating hostilities with Ukraine.
The West is accusing Russia of leading a separatist revolt in eastern Ukraine after it annexed Crimea last month.
The euro’s gains were held in check after European Central Bank President Mario Draghi reiterated warnings on Thursday that further gains in the euro could trigger additional monetary easing. He also said the ECB could launch a "broad-based" asset purchase program if the medium-term inflation outlook deteriorated.
Earlier in the week, data showed that the recovery in the euro zone private sector continued this month, but pointed to a divergence between Germany and France.
The recovery in Germany, the euro zone’s largest economy accelerated, with activity in both the manufacturing and service sector strengthening, but growth in the French private sector lost momentum.
In the U.S., data on Friday showed that consumer confidence rose to a nine-month high in April, adding to indications that the economy is improving.
The University of Michigan reported that its consumer sentiment index came in at 84.1 this month, up from 80 in March and the preliminary reading of 82.6. Analysts had expected the index to rise to 83.0.
In the week ahead, investors will be focusing on Friday’s U.S. jobs report for April and the outcome of the Federal Reserve’s two-day policy meeting on Wednesday. Wednesday's preliminary April inflation report for the euro zone will also be closely watched.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, April 28
- The U.S. is to release private sector data on pending home sales.
Tuesday, April 29- In the euro zone, Germany is to release preliminary
data on consumer price inflation and a report by market research group
Gfk on consumer climate, while Spain is to release data on the
unemployment rate.
- The U.S. is to a report compiled by the Conference Board on consumer confidence.
Wednesday, April 30- In the euro zone, Germany is to publish reports on
retail sales and unemployment change. Spain is to release preliminary
data on first quarter growth. The wider euro zone is to release
preliminary data on consumer price inflation.
- The U.S.
is to release preliminary data on first quarter GDP, as well as the ADP
report on private sector job creation, which leads the government’s
nonfarm payrolls report by two days. The U.S. is also to release data on
manufacturing activity in the Chicago region.
- Later Wednesday, the Federal Reserve is to announce its federal funds rate and publish its rate statement.
Thursday, May 1- Markets in Germany, France and Italy will remain closed for the Labor Day holiday.
- The
U.S. is to publish the weekly report on initial jobless claims. At the
same time, Fed Chair Janet Yellen is to speak at an event in Washington;
her comments will be closely watched.
- Later Thursday, the Institute of Supply Management is to release a report on manufacturing activity.
Friday, May 2Another hectic week lies ahead for markets as traders and investors navigate the Federal Reserve’s policy statement on Wednesday, Friday’s monthly U.S. job creation report, and earnings from about one quarter of companies in the S&P 500.
Companies expected to report quarterly results include Twitter, eBay, LinkedIn, Yelp, ExxonMobil, Chevron, ConocoPhillips, MasterCard, Merck, GlaxoSmithKline and Bristol-Myers Squibb.
Investors continue to sell so-called “momentum” stocks and buy the shares of more solid companies that have old fashion things like actual sales, revenue and profits – and many of them also often pay dividends like public companies are supposed to.
Monday brings earnings from Charter Communications, Herbalife and Hartford Financial among others, as well as updates on U.S. pending home sales and business inventories.
Tuesday sees an update on U.S. consumer confidence and a huge day for earnings, including results from Twitter, eBay, Merck, Bristol-Myers Squibb, Aflac, Coach, Cummins, DreamWorks Animation and MGM.
Wednesday afternoon brings the Federal Reserve’s policy statement, when markets will react like hair triggers to chair Janet Yellen’s every nuance on the future direction of interest rates — these need to return to normal, higher levels soon – and the pace at which the Fed will continue to reduce its unusual monthly bond-buying stimulus measures which have helped keep rates near zero for long periods.
The bookies on Wall Street know that the cheap money to make bets has to be taken away at some stage but still their high-frequency trading set-ups are programmed to react to Yellen’s statements like this information is somehow new.
Wednesday also sees earnings from MetLife, AllianceBernstein, Weight Watchers, Royal Dutch Shell, GlaxoSmithKline, Yelp, Time Warner, and news and information giant Thomson Reuters.
Other economic indicators due Wednesday include a private sector read on the job market from ADP, an early read on first quarter Gross Domestic product, and the purchasing managers index.
Thursday brings earnings from Kellogg, Kraft, LinkedIn, Chicago’s CME Group, Expedia, Domino’s Pizza, MasterCard and energy giants ExxonMobil and ConocoPhillips.
Friday brings what should be the biggest news of the week, the April job creation report, with analysts expecting good news to confirm the economic recovery is continuing.
Friday also sees earnings from Chevron, CVS Caremark – and possibly even Warren Buffett’s Berkshire Hathaway as it starts its annual weekend shareholders’ jamboree meeting in Omaha, Nebraska.
Oil Futures Tumble on Record Inventories
Oil futures fell as domestic inventories hit record peaks, while fears over supply disruptions kept world prices unchanged for the most part.
June delivery light sweet crude slid $1.34 or 1.3% on Friday to settle at $100.60 per barrel on the New York Mercantile Exchange, the lowest trading price since April 7. Prices plummeted 2.7% for the week.
Supplies of crude oil stand at 397.7 million barrels, the highest inventories since 1982 when the US Energy Information Administration started to monitor weekly data. The stockpiles have soared in 13 of the past 14 weeks, according to Wall Street Journal.
As per data that’s posted monthly since 1920, the supplies are at a peak last witnessed in 1932.
"The inventories have really been key this week. Right now, it almost seems like the U.S. is choking on crude oil,” said Oliver Sloup of Chicago-based iiTrader.
US oil production has surged in recent times as advanced technology has made it possible for producers to reach trapped supplies.
However, demand for crude oil drops in spring as refiners halt processing to carry out seasonal maintenance. Analysts anticipate that inventories will drop later in the spring after refineries resume increased production before the summer, which witnesses heightened driving.
Gasoline prices shed as much as 0.9%, losing for the third consecutive day.
Gasoline for May delivery plunged 0.67 cent to $3.0828 per gallon as of 10:12 am on the New York Mercantile Exchange. The amount traded was 54% above the 100-day average. Stockpiles for the commodity hit 210 million barrels last week after losing 274,000, less than the 1.65 million drop a Bloomberg survey had estimated.
On average, the US pump price slid 0.8 cent to sell at $3.693 per gallon, a high last seen 13 months ago, as shown in data from AAA in Florida. Prices have added 18.1 cents since a year ago.
Are stock and forex markets interlinked?
THE recent appreciation of the rupee and the consequent swings in stock exchanges brings interesting observations for businesses and stockbrokers.
In volatile and less integrated financial markets in developing countries, the important question is: whether there exists a volatility transmission between the stock and foreign exchange markets.
This article aims at examining the dynamics of volatility transmission between the stock and foreign exchange markets in Pakistan, because the interdependence between exchange rates and stock prices has important implications.
For example, increase in stock prices would attract capital, which increases the demand for domestic currency and causes the exchange rate to appreciate.
In particular, this study addresses the nature of volatility spillover between the two markets with reference to Pakistan.
We use data that covers three important market events that influenced the dynamics of stock and foreign exchange markets: the nuclear tests of May 1998, the terrorist attacks of September 11, 2001, and the global financial crisis sparked by the US sub-prime market failure in the middle of 2007.
Such market events can influence the underlying dynamic relationship between the equity and forex markets. This study empirically examines the short-run dynamic relationship between stock prices and exchange rate, which is useful for financial managers in making informed investment decisions.
Like many other developing economies, Pakistan has gone through a series of institutional and financial reforms since 1990 to reduce financial imbalances, enhance efficiency and depth of financial markets, and modernise the domestic financial sector.
The liberalisation of stock markets resulted in a sharp increase in inflow of portfolio investment, which not only helped in raising the investable funds, but also produced wild swings in stock market indices.
Despite the ongoing political crisis and a credit rating downgrade by Moody’s, Pakistan stood out as the best performing Asian Market in July 2012, as measured by the Morgan Stanley Capital International (MSCI) index.
Similarly, the foreign exchange market has also showed a high degree of volatility since 1998. For example, the rupee depreciated against the dollar from Rs43.19 in 1998 to Rs61.41 in 2001-02, and to Rs94.10 a dollar in August 2012. Currently, the rupee-dollar parity stands at about 99.
Exchange rate uncertainty may likely transmit shocks to stock markets. Therefore, awareness about inter-market volatility transmission is critical for the pricing of securities within and across markets for trading, hedging strategies and formulation of regulatory policies and portfolio management.
Furthermore, the link between stock and foreign exchange markets could be used to predict the future path of exchange rates, which provide could guidance to multinational corporations to manage their exposures with respect to risk that exchange rate fluctuations generate.
The results of empirical analysis suggest that exchange rate return produces no significant impact on stock return, whereas stock return exerts significant negative effects on exchange rate changes. Our results also depicted that 9/11 and the global financial crisis had little influence on Pakistan’s foreign exchange market. In contrast, the stability of the stock market was significantly influenced by the May 1998 nuclear tests.
The results support the existence of bidirectional volatility spillovers and asymmetric effect from stock returns to exchange rate changes.
Overall, these results show a significant information flow between the two markets, and that these markets are interdependent. This interdependence employs and confirms the volatility transmission between these two markets, as well as the recent appreciation in the rupee and its impact on the stock market. This is also confirmed with empirical results.
It appears from the analysis that structural shifts on the global and domestic fronts increases volatility of stock and foreign exchange markets. Therefore, there is a need to enhance the shock absorptive capacity of financial markets, especially during periods of crisis. To this end, the authorities may take appropriate measures to broaden the financial markets because Pakistan’s financial markets lack connectivity in terms of returns.
For example, reduction in capital gain tax may weaken the monopoly power of big investors and provide investment prospects, like in small and medium enterprises, mutual funds and IPOs to small investors to participate in stock market activities.
The authorities could also develop a framework for bringing down transaction time for settlement of securities, increase liquidity and market capitalisation, establish equity funds, encourage diversification of equity portfolios and adopt modern ways of transacting.
On the foreign exchange market front, authorities may take appropriate measures against those commercial banks (i.e. authorised forex dealers) responsible for unnecessary rupee depreciation against the dollar and other foreign currencies, and restore the exchange rate as well as financial stability.
The SBP may monitor the impact of stock price fluctuations on foreign exchange market, because investment earnings and the behaviour of international investors heavily depend on forex market trends.
An evidence of bidirectional volatility spillover across the markets indicates some degree of market inefficiency and uncertainty, which may shake investors’ confidence. It is, therefore, imperative to regulate and monitor both markets in order to minimise the adverse effect of volatility on investment decisions.
Trading the News: U.K. Gross Domestic Product (based on dailyfx article)
The advance U.K. 1Q Gross Domestic Product (GDP) report may generate fresh highs in the GBP/USD as the stronger recovery in Britain puts increased pressure on the Bank of England (BoE) to normalize monetary policy sooner rather than later.
What’s Expected:
Why Is This Event Important:
A pickup in economic activity may heighten the bullish sentiment surrounding the British Pound as it puts increased pressure on the Bank of England (BoE) lift the benchmark interest rate off the record-low, and Governor Mark Carney do little to halt the appreciation in the sterling as it helps to achieve the 2% target for inflation.
The resilience in private sector consumption along with the ongoing improvement in the labor market may prompt a marked pickup in the growth rate, and an upbeat GDP report may spur fresh highs in the GBP/USD as it raises the outlook for growth and inflation.
Sticky price growth paired with efforts to cool the housing market may generate a weaker-than-expected GDP print, and a dismal development may spur a larger correction in the GBP/USD as it drags on interest rate expectations.
How To Trade This Event Risk
Bullish GBP Trade: U.K. Economic Recovery Accelerates
- Need green, five-minute candle following the GDP print to consider a long British Pound trade
- If market reaction favors a bullish sterling trade, buy GBP/USD with two separate position
- Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
- Move stop to entry on remaining position once initial target is hit, set reasonable limit
Bearish GBP Trade: 1Q GDP Disappoints- Need red, five-minute candle to favor a short GBP/USD trade
- Implement same setup as the bullish British Pound trade, just in opposite direction
Potential Price Targets For The ReleaseGBP/USD Daily
1Q 2014 U.K. Gross Domestic Product (GDP)
GBPUSD M5 : 35 pips price movement by GBP - GDP news event
The GBPUSD pair was almost unchanged on the hour and day following fourth quarter GDP results for 2013. The that print the pair traded lower until February 5th and has been on the rise ever since. The breakdown of the results show that distribution, hotels % restaurants outperformed last quarter while electricity/gas, forestry & fishing lagged compared with the third quarter. Current market expectations are calling for a 0.9% QoQ and 3.2% YoY rise.
EUR/USD mocks at Draghi's efforts and set sights at 1.3880 resistance
EUR/USD is climbing higher in Asia as the pair moved to 1.3861 after opening at 1.3849
Risk vs. inflation
EUR/USD lived through a volatile session on Monday as the pair slumped to intraday lows early in Asia on the back of further Russia- Ukraine crisis escalation, but reversed losses and pushed to 1.3878 when the European players joined the game. Ironically, German Import Price Index came out lower than expected (-0.6% m/m, -3.3% y/y against forecasted -0.1% m\m, -2.7% y/y), increasing chances that today’s CPI will fail to meet expectations and put more pressure on ECB. Though markets seemed to look the other way. Today the European session starts with German ПАЛ Consumer Confidence index that is expected to stay unchanged at 8.5 in April. Strong figures might support EUR and push it yesterday’s high at 1.3878, though the investor are more likely to be focused on CPI data published later during the day. April y\y figure is expected to climb to 1.3% from 0.9% in March, but negative surprises are possible. If the data fails to live up to expectations EUR/USD may dip to 1.3820 and then to the key support level of 1.3800.
What are today’s key EUR/USD levels?
Today's central pivot point can be found at 1.3848, with support below at 1.3817, 1.3782 and 1.3751, with resistance above at 1.3883, 1.3914, and 1.3949. Hourly Moving Averages are bullish, with the 200SMA at 1.3824 and the daily 20EMA neutral at 1.3816. Hourly RSI is bullish at 53.
EUR/USD drops to 1.3850 on EMU data
The single currency is now reverting the early upside, dragging the EUR/USD back to the 1.3850 area after softer EMU releases.
EUR/USD deflates on data
The pair is now giving away some gains after EMU’s M3 Money Supply expanded below estimates at an annual pace of 1.1% during March vs. 1.4% forecasted and February’s 1.3%. Private Loans followed suit, contracting 2.2% in a year to March, missing forecasts for a 2.1% contraction. Previous releases showed the German Consumer Confidence gauged by the Gfk Survey matching estimates at 8.5 for the month of May. “Looking at the latest money and credit growth data there remains a compelling case for further monetary easing by the ECB. However, with inflation expected to bounce this month and economic activity continuing to recover, we suspect that the ECB will stick to its strategy of verbal intervention at next week’s press conference and refrain from taking further policy action”, commented Martin van Vliet, Analyst at ING Bank NV.
EUR/USD levels to watch
As of writing the pair is up 0.05% at 1.3858 with the next resistance at 1.3880 (high Apr.28) ahead of 1.3906 (high Apr.11) and then 1.3925 (high Mar.19). On the flip side a breakdown of 1.3832 (daily cloud top) would aim for 1.3824 (10-d MA) and finally 1.3815 (low Apr.28).