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The dollar pushed higher against the yen on Friday, but was still close to a three-week low struck earlier in the week, as concerns over the crisis in Ukraine continued to underpin safe haven demand.
USD/JPY was at 101.85 late Friday, holding above the three-week trough of 101.42 reached on Tuesday. For the week, the pair was down 0.27%.
The pair is likely to find support at 101.42 and resistance at 102.25, the high of May 5.
Investors remained cautious ahead of a weekend referendum by pro-Russian separatists in Ukraine's two eastern regions, which has been condemned by Ukraine’s government and the West.
The dollar fell to the weakest level since mid-April against the yen earlier in the week following dovish comments by Fed Chair Janet Yellen, who said a high degree of monetary accommodation remains warranted given the slack in the U.S. economy.
The comments came during testimony to the Joint Economic Committee of Congress.
Elsewhere Friday, the yen rose to two-month highs against the broadly weaker euro, with EUR/JPY at 140.09 late Friday, the weakest since March 4. The pair ended the week down 1.15%.
The drop in the euro came after ECB President Mario Draghi said Thursday the bank is “comfortable” with acting to shore up growth and stop inflation from falling too low at its next meeting in June.
The ECB left rates on hold on Thursday, as expected.
Draghi also said the strength of the euro was “a serious concern” and added that the bank would be closely monitoring exchange rate developments.
The single currency came under additional pressure after data on Friday showed that German exports fell 1.8% from a month earlier in March and the country posted a smaller-than-forecast trade surplus.
In the week ahead, investors will be looking ahead to preliminary data on first quarter economic growth from Japan, while the U.S. is to publish reports on retail sales, consumer prices and consumer sentiment.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, May 12
- Japan is to release data on its current account.
- Later Monday, the U.S. is to publish data on the federal budget balance.
Tuesday, May 13- The U.S. is to produce data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity, as well as reports on import prices and business inventories.
Wednesday, May 14- The U.S. is to release data on producer price inflation.
Thursday, May 15- Japan is to publish preliminary data on first quarter gross domestic product, the broadest indicator of economic activity and the leading indicator of economic growth. The nation is also to release a report on tertiary industry activity.
- The U.S. is to release data on initial jobless claims, consumer inflation and industrial production, as well as a report on manufacturing activity in the Philadelphia region.
Friday, May 16The dollar rose to a one-month high against the Swiss franc on Friday, recovering from lows hit earlier in the week in the wake of dovish comments by Federal Reserve Chair Janet Yellen.
USD/CHF ended Friday’s session at 0.8862, 0.62% higher for the day and extending the week’s gains to 0.95%.
The pair was likely to find support at 0.8740 and resistance at 0.8925.
The dollar gained ground as concerns over the crisis in Ukraine eased but investors remained cautious ahead of a weekend referendum by pro-Russian separatists in Ukraine's two eastern regions, which has been condemned by Ukraine’s government and the West.
The dollar fell to the weakest level since early April against the Swissy earlier in the week after Fed Chair Janet Yellen said a high degree of monetary accommodation remains warranted given the slack in the U.S. economy.
The comments came during testimony to the Joint Economic Committee of Congress.
Elsewhere, the Swiss National Bank said Wednesday that its foreign currency reserves rose in April.
The Swiss central bank said it held 438.949 billion Swiss francs in foreign currency at the end of April, up from 437.935 billion in March, indicating that it has not been actively buying euros to defend its 1.20 Swiss francs per euro minimum exchange rate floor.
The SNB imposed the exchange rate floor in September 2011 to help stave off the risk of deflation and recession, as safe haven inflows prompted by the crisis in the euro zone pushed the Swiss franc close to parity with the euro.
The Swissy was little changed against the euro on Friday, with EUR/CHF settling at 1.2193.
The euro ended the week sharply lower against some of the other major currencies after European Central Bank President Mario Draghi said Thursday the bank is “comfortable” with acting to shore up growth and stop inflation from falling too low at its next meeting in June.
The ECB left rates on hold on Thursday, as expected.
In the week ahead, investors will be looking ahead to the U.S. reports on retail sales, consumer prices and consumer sentiment. Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, May 12
- Switzerland is to produce data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity.
- Later Monday, the U.S. is to publish data on the federal budget balance.
Tuesday, May 13- The U.S. is to produce data on retail sales, as well as reports on import prices and business inventories.
Wednesday, May 14- The ZEW Institute is to publish a report on economic expectations in Switzerland, a leading indicator of economic health.
- Later Wednesday, the U.S. is to release data on producer price inflation.
Thursday, May 15- Switzerland is to publish data on producer price inflation.
- The U.S. is to release data on initial jobless claims, consumer inflation and industrial production, as well as a report on manufacturing activity in the Philadelphia region.
Friday, May 16The U.S. dollar strengthened against the Canadian dollar on Friday, rebounding from four-month lows after data showed that the Canadian economy unexpectedly shed jobs in April.
USD/CAD was at 1.0897 late Friday, up 0.62% for the day, after falling as low as 1.0813 in the previous session. For the week, the pair was still down 0.55%.
The pair was likely to find support at 1.0813 and resistance at 1.0960.
The Canadian dollar weakened after Statistics Canada reported that the economy shed 28,900 jobs in April, confounding expectations for jobs growth of 12,000.
The unemployment rate remained unchanged at 6.9%, in line with expectations but the labor force participation rate, which measures those still actively looking for work, ticked down to 66.1% in April from 66.2% the previous month.
The decline in employment was the largest since December 2013.
The weak data added to concerns over the prospect of weaker-than-expected economic growth in the second quarter and underline expectations that the Bank of Canada will keep rates on hold for longer.
The U.S. dollar weakened against the other major currencies earlier in the week after Federal Reserve Chair Janet Yellen struck a dovish tone on the economy during testimony to the Joint Economic Committee of Congress on Wednesday.
Ms. Yellen said that a high degree of monetary accommodation remains warranted given the slack in the economy.
The Fed chief also said the bank expects economic growth to accelerate this year despite the slowdown in the first quarter but warned that the recent housing market slowdown "could prove more protracted than currently expected."
In the week ahead, the data calendar for Canada is light so investors will be looking ahead to U.S. reports on retail sales, consumer prices and consumer sentiment.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, May 12
- The U.S. is to publish data on the federal budget balance.
Tuesday, May 13- The U.S. is to produce data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity, as well as reports on import prices and business inventories.
Wednesday, May 14- The U.S. is to release data on producer price inflation.
Thursday, May 15- Canada is to release a report on manufacturing sales.
- The U.S. is to release data on initial jobless claims, consumer inflation and industrial production, as well as a report on manufacturing activity in the Philadelphia region.
Friday, May 16Fundamental Analysis
Fundamental analysis is the study of statistical reports and economic indicators of countries to trade currencies more effectively. Changes in interest rates, employment reports, and the latest inflation figures, all fall under the purview of fundamental analysis, which forex traders must pay close attention to, because they can have a direct bearing on the value of a nation’s currency. Data used in forex fundamental analysis can be classified by the degree to which they affect the market:
Given the importance of these indicators, it is necessary to closely follow economic calendars, and know beforehand when they are scheduled for release. The most powerful indicators that move forex market include:
Generally, if a country increases its interest rates, its currency will increase in value because investors will shift their assets to that country to gain higher returns.
GDP is the primary indicator of the strength of economic activity in a country, and is generally reported quarterly. A high GDP figure leads to expectations of higher interest rates, which is mostly positive for the given currency.
A decreases in payroll employment is considered as a sign of weak economic activity, and could eventually lead to lower interest rates, which has a negative impact on the currency.
A country with a significant trade balance deficit is likely to have a weak currency as there will be continuous commercial sellings of its currency.
Traders, who rely on fundamental analysis to study markets, will typically create models to formulate a trading strategy. These models generally utilize a host of empirical data and try to forecast market behavior and estimate future currency levels. This information is then used to draw out specific trades that best exploit the situation. Forecasting models are as varied and numerous as the traders that create them. Two people can analyze the exact same data and come up with two completely different conclusions about how it will impact the market. Therefore is it important to understand what is more relevant to the current market and economic conditions, and not succumb to ‘paralysis by analysis.’
The Australian dollar eased off a three-week high struck in the previous session against its U.S. counterpart on Friday, after the Reserve Bank of Australia reiterated that interest rates will remain at record lows for the foreseeable future.
AUD/USD hit 0.9393 on Thursday, the pair’s highest since April 15, before subsequently consolidating at 0.9363 by close of trade on Friday, down 0.12% for the day but 0.91% higher for the week.
The pair is likely to find support at 0.9269, the low from May 6 and resistance at 0.9393, the high from May 8.
In its statement of monetary policy published Friday, the RBA changed its growth and inflation forecasts despite a higher exchange rate, and said monetary policy will remain accommodative for an extended period.
The inflation outlook suggests there is still space capacity in the economy and "given that assessment, the board's view is that the current accommodative monetary policy setting is likely to be appropriate for some time yet," the RBA said.
The central bank upgraded the outlook for the near term, forecasting annualized growth of 3.0% in June, compared with 2.75% in the February statement.
But in the case of inflation, the RBA lowered its near-term projection to a 2.75% gain year-on-year for underlying inflation from 3.00% in the February statement.
The Aussie rallied to a three-week high on Thursday after official data showed that the number of employed people in Australia rose by 14,200 in April, beating expectations for a 6,800 increase. March's figure was revised up to a 22,000 rise from a previously estimated 18,100 gain.
The report also showed that Australia's unemployment rate remained unchanged at 5.8% last month, compared to expectations for an uptick to 5.9%.
On Tuesday, the RBA held the cash rate at a record low 2.5% as widely expected in its latest board review.
Meanwhile, the greenback remained under pressure after Federal Reserve Chair Janet Yellen said Wednesday that a high degree of monetary accommodation remains warranted given the slack in the economy.
Data from the Commodities Futures Trading Commission released Friday showed that speculators decreased their bullish bets on the Australian dollar in the week ending May 6.
Net longs totaled 8,637 contracts, compared to net longs of 10,706 in the preceding week.
In the week ahead, investors will be looking to U.S. data on retail sales, consumer prices and consumer sentiment for further indications on the strength of the economy and the need for stimulus.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, May 12
- Australia is to publish private sector data on business confidence.
- Later Monday, the U.S. is to publish data on the federal budget balance.
Tuesday, May 13- Australia is to produce data on house price inflation and home loans, while the government is to release its annual budget report.
- China is to release data on industrial production and fixed asset investment. The Asian nation is Australia’s largest trade partner.
- The U.S. is to produce data on retail sales, as well as reports on import prices and business inventories.
Wednesday, May 14- The U.S. is to release data on producer price inflation.
Thursday, May 15- The U.S. is to release data on initial jobless claims, consumer inflation and industrial production, as well as a report on manufacturing activity in the Philadelphia region.
Friday, May 16The New Zealand dollar fell to a one-week low against its U.S. counterpart on Friday, following comments from Reserve Bank of New Zealand Deputy Governor Grant Spencer.
NZD/USD hit 0.8603 on Friday, the pair’s lowest since May 2, before subsequently consolidating at 0.8612 by close of trade, down 0.4% for the day and 0.6% lower for the week.
The pair is likely to find support at 0.8591, the low from May 2 and resistance at 0.8670, the high from May 8.
RBNZ Deputy Governor Spencer said Friday that the high exchange rate is a cause for concern. He added that housing market prices and the exchange rate are important variables for the pace and timing of interest rate hikes.
"A big uncertainty is the future path of the exchange rate, which has a major bearing on traded goods prices and overall economic activity," he said. "The more downward pressure that the exchange rate exerts on prices and activity, the less pressure will need to be exerted by interest rates."
The RBNZ has raised the official cash rate by 25 basis points twice since March to 3.00% now.
On Wednesday, RBNZ Governor Graeme Wheeler warned against the Kiwi's current strength, saying that "it would become more opportune for the Reserve Bank to intervene in the currency market to sell New Zealand dollars", in the face of worsening fundamentals.
In addition, official data showed that the number of employed people in New Zealand rose by 0.9% in the first quarter, beating expectations for a 0.6% increase, after a 1.1% gain in the three months to December.
The report also showed that New Zealand's unemployment rate remained unchanged at 6.0% in the last quarter, disappointing expectations for a downtick to 5.9%.
Meanwhile, the greenback remained under pressure after Federal Reserve Chair Janet Yellen said Wednesday that a high degree of monetary accommodation remains warranted given the slack in the economy.
Data from the Commodities Futures Trading Commission released Friday showed that speculators increased their bullish bets on the New Zealand dollar in the week ending May 6.
Net longs totaled 20,693 contracts as of last week, compared to net longs of 18,480 contracts in the previous week.
In the week ahead, investors will be looking to U.S. data on retail sales, consumer prices and consumer sentiment for further indications on the strength of the economy and the need for stimulus.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, May 12
- The U.S. is to publish data on the federal budget balance.
Tuesday, May 13- China is to release data on industrial production and fixed asset investment. The Asian nation is New Zealand’s second largest trade partner.
- The U.S. is to produce data on retail sales, as well as reports on import prices and business inventories.
Wednesday, May 14- The RBNZ is to publish its bi-annual financial stability report. Governor Graeme Wheeler is to hold a press conference to discuss the report. Meanwhile New Zealand is to release data on retail sales.
- Later Wednesday, the U.S. is to release data on producer price inflation.
Thursday, May 15- New Zealand is to release its annual budget statement, as well as private sector data on manufacturing activity.
- The U.S. is to release data on initial jobless claims, consumer inflation and industrial production, as well as a report on manufacturing activity in the Philadelphia region.
Friday, May 16Sterling moved lower against the dollar on Friday, pulling back from the almost five year highs struck earlier in the week, but demand for the pound continued to be underpinned by expectations for a U.K. rate hike early next year.
GBP/USD was down 0.48% to 1.6849 late Friday. Earlier in the week, the pair touched highs of 1.6994, the most since August 2009. For the week, the pair slipped 0.11%.
Cable is likely to find support at 1.6700 and resistance at 1.6900.
The pound’s losses came despite data on Friday showing that British factory output grew at its fastest quarterly rate in nearly four years during the first three months of the year.
Output grew 1.4%, up from 0.6% in the fourth quarter of 2013.
A separate report showed that the U.K. trade deficit narrowed unexpectedly in March.
Sterling’s losses were checked as a recent string of upbeat reports about the U.K. economy has bolstered expectations the BoE could raise borrowing costs ahead of other central banks.
The dollar firmed up on Friday after slumping earlier in the week following dovish remarks by Federal Reserve Chair Janet Yellen during testimony to the Joint Economic Committee of Congress.
Speaking Wednesday, Ms. Yellen said that a high degree of monetary accommodation remains warranted given the slack in the economy.
The Fed chief also said the bank expects economic growth to accelerate this year despite the slowdown in the first quarter but warned that the recent housing market slowdown "could prove more protracted than currently expected."
In the week ahead, investors will be looking ahead to the BoE’s quarterly inflation report for further indications of the expected course of monetary policy, as well as the latest U.K. employment report.
The U.S. is to publish reports on retail sales, consumer prices and consumer sentiment.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, May 12
- The U.S. is to publish data on the federal budget balance.
Tuesday, May 13- The U.K. is to release private sector data on retail sales.
- The U.S. is to produce data on retail sales, as well as reports on import prices and business inventories.
Wednesday, May 14- The U.K. is to release official data on the change in the number of people unemployed and the unemployment rate and average earnings. The BoE is to publish its quarterly inflation report, and
- Governor Mark Carney is to hold a press conference to discuss the report.
- Later Wednesday, the U.S. is to release data on producer price inflation.
Thursday, May 15- The U.S. is to release data on initial jobless claims, consumer inflation and industrial production, as well as a report on manufacturing activity in the Philadelphia region.
Friday, May 16The euro extended losses against the dollar into a second session on Friday, falling to a one-month low at the close, one day after the European Central Bank flagged possible monetary easing as soon as next month.
EUR/USD was at 1.3756 late Friday, the weakest level since April 8, down 0.60% on the day. For the week, the pair was off 0.85%.
The pair is likely to find support at 1.3695 and resistance at 1.3843, Friday’s high.
The euro fell from two-and-a-half year highs against the dollar on Thursday after ECB President Mario Draghi said the bank is “comfortable” with acting to shore up growth and stop inflation from falling too low at its next meeting in June.
The comments came after the ECB left rates on hold, as expected.
Draghi also said the strength of the euro was “a serious concern” and added that the bank would be closely monitoring exchange rate developments.
The single currency came under additional pressure after data on Friday showed that German exports fell 1.8% from a month earlier in March and the country posted a smaller-than-forecast trade surplus.
The euro dropped to two-month lows against the yen, with EUR/JPY at 140.09 late Friday, the weakest since March 4. The pair ended the week down 1.15%.
The U.S. dollar weakened against the other major currencies earlier in the week after Federal Reserve Chair Janet Yellen struck a dovish tone on the economy during testimony to the Joint Economic Committee of Congress.
Speaking Wednesday, Ms. Yellen said that a high degree of monetary accommodation remains warranted given the slack in the economy.
The Fed chief also said the bank expects economic growth to accelerate this year despite the slowdown in the first quarter but warned that the recent housing market slowdown "could prove more protracted than currently expected."
In the week ahead, investors will be looking ahead to preliminary data on first quarter growth in the euro zone, while the U.S. is to publish reports on retail sales, consumer prices and consumer sentiment.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, May 12
- The U.S. is to publish data on the federal budget balance.
Tuesday, May 13- The ZEW Institute is to release its closely watched report on German economic sentiment, a leading indicator of economic health.
- The U.S. is to produce data on retail sales, as well as reports on import prices and business inventories.
Wednesday, May 14- The euro zone is to produce data on industrial production.
- Later Wednesday, the U.S. is to release data on producer price inflation.
Thursday, May 15- The euro zone is to publish preliminary data on first quarter gross domestic product, the broadest indicator of economic activity and the leading indicator of economic growth. The bloc is also to produce revised data on consumer inflation.
- The U.S. is to release data on initial jobless claims, consumer inflation and industrial production, as well as a report on manufacturing activity in the Philadelphia region.
Friday, May 16Advice for young insider traders
Made vital rookie errors: One of the accused duo, Lukas James Kamay leaves court on Friday. Photo: Wayne Taylor
Apart from getting caught, the two men accused of one the largest trading operations in the nation’s history made a couple of other mistakes.
They used the foreign exchange market rather than the bond market and given the privileged information they had, should have made $70 million rather then the reported $7 million.
That’s according to a few veteran traders with almost 30 years experience who spoke to Fairfax Media.
With the money they did make, it looks like they splashed out on lavish items that would have drawn attention to themselves. Another rookie mistake.
You only need to watch Martin Scorsese’s Goodfellas to know you spend the money gradually and not on flashy expensive items.
But there probably isn’t a trader in the world who at some stage, hasn’t thought about getting vital information before anyone else. After all, who doesn’t try and make their job as easy as possible?
Each month, or quarter, when the country’s key economic data is released at 11.30 am, the art of making money would be so much easier if you knew the numbers in advance.
But of course, there’s a world of difference between breaking the law and doing whatever it takes to get some sort of advantage. And getting some sort of advantage is nothing new.
In the 1990s some trading desks would send staff to the office of the Australian Bureau of Statistics to be first there when the data was manually released.
As soon as the latest current account data was known, they’d be on the phone straight away trying to be the first to report back with the market-moving information.
But once everyone did that, the edge was gone.
To try and keep that edge an operative at Banker’s Trust, a banking powerhouse at the time, came up with the idea of ringing the Darwin office of the ABS.
The hope was a staff member at a branch office might say what the number was a few minutes before the official release.
And a few minutes is all that’s required to make money.
Although dealing in shares tends to get the headlines when it comes to insider trading scandals there is, at times, more money to be made in bond futures.
In addition, the Australian dollar at times may not necessarily move in line with the sensitive information that was leaked about the labour force, retail and trade figures. In the bond and interest rate market, however, it does.
Furthermore, by placing big chunky trades of say, the equivalent of $100 million in the foreign exchange market, it means the two men accused are more likely to stand out; as volumes can be thin leading into and straight after the release of vital economic data. Although at times volumes can also be light in the futures market.
Some traders on Friday said that if the two men had opted to trade in smaller parcels, they might have got away with it for longer.
The other talking point on trading desks on Friday afternoon, as news of the trades filtered through, has been the performance of public servants over the years when it comes to important statistics that move the market.
Every now and then there will be a late trade heading into an important number that will draw the ire of some who end up losing money on the day.
If the late trade ends up being a losing one of course no one says anything. Liquidity is never at its best just before a number but of course if you know the number you can pay up to get set - safe in the knowledge the market is about to move substantially.
But given what sort of sensitive information goes through so many hands at not just the ABS but also the Reserve Bank of Australia, some market veterans on Friday were praising the honesty and integrity of the public service.
The week ahead offers economic and corporate news that is potentially market moving as investors continue to run scared from many overvalued biotech, Internet, small-cap and so-called “momentum” stocks and seek the safety of established and dividend-paying companies like utilities.
The Russell 2000 index of smaller company shares has fallen roughly 8 percent in the last two months.
And despite big, blue chip stocks driving the Dow Jones index to a record this past Friday, markets remain edgy and need some direction. This week, they just might get some.
Investors will examine retail sales figures for April, updates on inflation and housing starts, and earnings from big companies including Wal-Mart, Cisco and Deere & Co DE +0.06%.
Monday brings the U.S. Treasury’s April budget statement and some details on U.S. government bond auctions.
Tuesday sees April figures published for U.S. retail sales and March figures for U.S. business inventories.
Also planned for Tuesday is a hearing of a U.K. House of Commons business committee to question Pfizer PFE -0.48% CEO Ian Read and AstraZeneca chief Pascal Soroit about Pfizer’s proposed acquisition of AstraZenca, which is proving politically difficult in Britain.
On Wednesday, U.S. President Barack Obama is expected to speak in New York on the U.S. economy, according to Bloomberg News, and the U.S. producer price index for April is due.
Also on Wednesday, earnings are expected from Cisco Systems, Deere & Co and Macy’s.
Thursday brings an evening speech on small business by Federal Reserve chair Janet Yellen — and a slew of economic news, including a read on April inflation, news on April’s U.S. industrial production, the May Philadelphia Fed survey and weekly U.S. initial jobless claims.
The Federal Reserve will be hoping that consumer prices have ticked upwards to bring inflation a little closer to its 2 per cent target.
Thursday’s earnings news includes results from Wal-Mart, Nordstrom, J.C. Penney, Hyundai Motor and National Grid.
Friday will provide news on U.S. housing starts and building permits for April, and a preliminary read on May’s University of Michigan consumer confidence report.