GLOBAL FOREX MARKET REPORT
European factors continue to raise volatility levels in global markets, it started with the Swiss Central Banks unexpected unpegging of the franc from the Euro almost two weeks ago, the volatility carried on through last week and was exacerbated on Thursday by the ECB’s announcement of a EUR 60bn stimulus package, the size of which was well above market expectation. Finally, this week started with the news that the far-left party, Syriza, had won the Greek national elections, the party advocates rejection of the austerity measures implemented as a condition of the Eurozone bailout of Greek debt.
United States Dollar (USD):
News out of the US continues to take a backseat to that out of Europe however the FOMC meeting announcement on Wednesday will push USD driven moves back into the spotlight. Dollar gains have continued in early trade as investors pick up the “safe-haven” currency.
It’s a busy data week for the dollar, Tuesday sees Durable Goods Orders as well as New Home Sales. Wednesday has the main event, the FOMC meeting announcement by Janet Yellen, investors expect rates to be held unchanged but will be looking for signs as to when a fiscal tightening may occur. Thursday holds the normal jobless claims figures before Friday closes out the week with GDP figures.
Dollar strength is continued to continue through the week but volatile swings may occur if the market attempts to take quick profits.
Having lost close to 8% against the US dollar since the beginning of the year, the Euro got off to a negative start on the news that the anti-austerity party Syriza had won the Greek elections, raising the risk of the countries exit from the Eurozone. EURUSD reached a 12year low of 1.1098, but has clawed back some ground as the market has rationalised some initial fears and Syriza stated it is not their intention to leave the union. The exit of Greece itself is not the major concern but rather the implications that the sentiment may spread to more sizeable economies such as Italy.
The ECB’s Mario Draghi announced last Thursday that they would be ramping up the monetary stimulus package to EUR60bn of asset purchases per month to try kick-start the economy, this is more sizeable than expected by the market but is feared to be too little too late.
EURUSD is currently trading around 1.1280, support is at expected at 1.1110 whilst the upper ceiling is seen at 1.1460.
British Pound (GBP):
Sterling has gained close to 2% on EUR in the past week, it has traded relatively flat against the dollar but quick and sizeable swings have been experienced. Currently trading at 1.3375 to the EUR and 1.5090 to the dollar.
A relatively quiet data week for the UK. The main news is out today, with preliminary GDP figures announced, then Friday sees lending figures to individuals announced. Neither is expected to generate massive reactions and the sterling will take its bearing from the Euro in the first half of the week and the US dollar in the second half.
Support against USD is seen at 1.4950 whilst resistance is expected at the 1.51 mark.
Australian Dollar (AUD):
The Aussie consistently lost ground to the dollar last week, falling to levels not seen since mid-2009, the reason for the decline is both investors flight to safety coupled with poorer than expected figures out of its biggest trading partner, China.
Data out this week includes CPI on Wednesday and PPI on Friday.
The commodities driven currency is rangebound between 0.7860 and 0.8070 to USD.
New Zealand Dollar (NZD):
Slowing inflation will likely keep interest rates low in the medium term, the Reserve Bank of NZ’s first interest rate announcement of the year is on the 29th, analysts expect rates to be held at 3.5%
Currently trading at 0.7420 to USD, with a downward bias as investors favour the Greenback over the Kiwi.
South African Rand (ZAR)
The rand has made strong gains against all majors since Thursdays ECB announcement, analysts feel it has outperformed compatriot currencies and a correction may occur in the short-term. The key announcement out of SA this week is the SARB’s MPC announcement on Thursday, inflation has fallen well within the mandated band predominately on the back of lower oil prices. The market expects a no-change decision so anything to the contrary would cause some immediate rates movement.
The recent rand strength is largely based on the sell-off of the Euro and its outperformance is expected to be short lived. Local factors remain a hindrance and will not provide any support for the rand, Eskom’s supply woes continue with countrywide loadshedding expected this week. GDP growth expectations have been cut by the IMF, they see the economy growing by only 2.1% this year. In addition dampened commodity prices are expected to prevail through the year placing pressure on the performance of the minerals sector.
In early trade today the rand has lost some ground against the majors, currently trading around 17.29 to GBP; 11.45 to USD; 12.92 to EUR and 9.0920 to AUD.