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Weekly FX Market Performance

weekly fx market performance

  • The Australian dollar maintained the gains last week as the currency rallied for the second consecutive week emerging as the top performing currency last week. The AUD gained 1.50%, which came on top of the 1.17% gains from the week before.
  • The New Zealand dollar was the second top performing currency with gains of 1.39%. The gains in the NZD following a week start after prices rose 0.40% from the week before.
  • The risk off sentiment in the market was evident with the Japanese yen coming out as the weakest currency last week. The JPY was down 0.07% and was only next to the U.S. dollar in terms of the worst performance of the week.
  • The Euro currency managed to maintain some pressure as it rallied 0.65%. This reversed the 0.32% declines from the week before, but overall price action was relatively subdued compared to other currencies.
  • The Canadian dollar was up 0.82%, adding to the gains of 1.93% from the week before. The CAD managed to hold its ground despite the Bank of Canada leaving interest rates unchanged. Higher oil prices managed to boost the currency.
  • The Norwegian krone was another currency that posted gains of 0.83% on the week, adding to the 1.05% gains seen from the week before.

Market Highlights from last week

The U.S. services sector as measured by the Institute of Supply Management showed a decline in activity which was more than expected for the month of December. Data from ISM’s non-manufacturing PMI showed that the index fell to 57.6 in December. This came after November showed a strong activity as the index rose to 60.7. Economists polled expected the index to fall to 59.0. The respondents said that there were largely concerned on the effects of tariffs. The bigger than expected decline was due to slower growth in business activity. The new business activity index was seen easing to 59.9 in December, down from November’s 65.2 headline print. The headline employment index also fell from 58.4 to 56.3 in December.

German factory orders showed a decline for the first time in four months in the month of November. The declines were worse than expected. On a seasonally adjusted basis, factory orders fell 1.0% from October after rising 0.2% on a revised basis during the month. Economists polled forecast a decline of 0.1%. The declines in November were the sharpest since the decline in June. In a separate report, data showed that retail sales increased 1.4% in November on a month over month basis. The data for October was revised higher to show a 0.1% increase compared to initial estimates of a 0.3% decline.

The Sentix investor confidence for the Eurozone showed a deterioration for the fifth consecutive month. The index fell to the lowest level in four years in the month of January. However, the pace of declines was severe than expected. The Sentix investor confidence fell to -1.5 in January from -0.3 in December. This was the lowest reading since December 2014. The current situation index also fell for the fifth consecutive month to 18 and marked a one year low. The Sentix managing director commented that with the given declines, the Eurozone economy was close to being stagnant.

The Bank of Canada held its monetary policy meeting last week. The central bank kept interest rates unchanged at 1.75% as it took a cautious tone amid falling oil prices. The central bank also released its economic outlook report for 2019 and forecast that the GDP would advance at a slower pace than previously forecast. The central bank reiterated that the path of monetary policy would be data dependent.

Consumer prices in China advanced at a rate of 1.9% on an annualized basis in November, data from the National Bureau of Statistics showed last week. This was below the median estimates of a 2.1% increase and the pace of increase was slower compared to the 2.2% increase registered in November. Producer prices data rose 0.9% on the year and missed estimates of a 1.6% increase and showed a sharp decline compared to November’s increase of 2.7%.

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Important Economic Events of the week

The Chairman of the Federal Reserve, Jerome Powell will be giving his speech to the Joint Economic Committee in
Washington DC this week. This will be the first official event from Powell after the December rate hike and the release of the
December monetary policy minutes. Mr. Powell is expected to tread cautiously, given that the U.S. labor market data for
December showed that the economy was still going strong. Higher wage growth and higher pace of hiring is expected to keep the
economic momentum going. The central bank has signaled two rate hikes this year. As a result, Powell testifying to the JEC will
be of importance as investors interpret his prepared remarks which could be seen as a forward guidance for the U.S. monetary
policy.

On the economic front, this week will see the release of the monthly retail sales and inflation figures. Both the reports cover
the month of December and will be the second set of economic data to come out. Retail sales is expected to maintain its
momentum while consumer prices although weaker due to lower fuel prices are expected to be relatively stable.

Other economic reports over the week will cover the fourth quarter GDP figures from China. The data will give full insight into
China’s GDP growth over the year. The world’s second largest economy has been targeting a growth rate of above 6% this year.
Any signs of slowdown in the economy could however signal concerns about the U.S. led tariffs having its effect on the Chinese
economy.

The UK government is expected to hold a parliamentary vote on Brexit this week on Monday. This will be the second attempt
by the British government following the initial vote being called off in the first instance in December. With no acceptable deal in
place, the prospects of the UK crashing out of the EU with no deal in hand remains a possibility. Brexit will no doubt dominate the
UK headlines once again and could bring volatility back to the British pound.

Technical Analysis on Gold

Gold prices were seen settling in a range as repeated tests of support at the 1280 handle failed to give way.

This kept gold prices supported higher but the precious metal failed to make further gains over the week.

However, the consolidation is likely showing that the support could eventually capitulate giving way to lower gold prices in the coming week.

However, major geo-political events over the week could see the market’s flight to safety keeping gold prices higher.

This week, the UK will be voting on the Brexit deal.

Although the markets have discounted the fact that the deal will be defeated in parliament, flash news could potentially bring some volatility.

Meanwhile, in the U.S. the continued government shutdown could potentially hurt the sentiment in the markets as well.

From a technical perspective, we expect gold to be biased to the upside as long as the support is not breached.

This upside push could potentially send gold prices to test the 1300 level at the very least.

Failure to breakout higher could however keep gold prices to either consolidate above the 1280 support or break down and slip towards the 1250 level for the much anticipated corrective move to the downside.

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