Weekly Report

Market analysis

Highlights:

• EUR/USD : Keeps its positive stability
• GBP/USD : Hits fresh 1-month lows despite U.K. data
• USD/JPY : Reverses a big figure drop
• USD/CAD : Drops on strong Canadian GDP data
• Gold : Little changed near 2-week lows
• Crude Oil : Gains on surprise OPEC output deal

EUR/USD

Keeps its positive stability

It was a week to forget for the EURUSD traders. A week in which the total range was around 125 pips, despite the fears about the Deutsche bank which caused a risk off sentiment for a brief period. Normally, this pair has a daily range of 80-100 pips. The euro dropped against the U.S. dollar on Friday, as concerns about the health of Deutsche Bank weighed on the single currency and undermined risk appetite across global markets. The low of the week was around 1.1150 and the high came in at around 1.1275 making it a tight week of trading. The coming week is the first week of the month where there is a slew of news coming out from different parts of the world and this is likely to perk up the liquidity and the volatility. Though there is not much news from the Euro region, apart from the continuing Deutsche bank fears, we have much news from the US with the most important being the NFP coming in on Friday. Meanwhile, market sentiment improved following reports late last week that Deutsche Bank is nearing a deal to settle a mortgage-securities investigation by paying a $5.4 billion fine, well below the Justice Department’s original proposal of $14 billion.

Official data on Friday showed that the euro zone’s consumer price inflation rose by a 0.4% this month, in line with forecasts and following a final reading of a 0.2% advance in August. Core CPI, which excludes food, energy, alcohol, and tobacco costs, increased by 0.8% in September, compared to expectations for a 0.9% gain and the previous month’s 0.8% increase. The report came shortly after data showed that German retail sales fell 0.4% in August, disappointing expectations for a 0.3% slip. Official data on Thursday showed that the number of unemployed people in Germany rose by 1,000 this month, disappointing expectations for a 5,000 drop. On a more positive note, another report showed that Germany’s consumer price index edged up 0.1$ in September, beating expectations for a flat reading. The euro found some support after the German research institute Ifo said its Business Climate Index rose to 109.5 this month, the highest level since July 2014, from a reading of 106.3 in August, above forecasts for 106.4.

EUR/USD

GBP/USD

Drops to 3-month lows despite upbeat U.K. data

The pound dropped to three-month lows against the U.S. dollar on Monday, as the release of upbeat U.K. manufacturing activity data failed to reassure investors over the strength of the economy following the Brexit vote. Research group Markit said its U.K. manufacturing purchasing managers’ index jumped to 55.4 last month from a reading of 53.3 in August. That was its highest level since 2014. But investors remained cautious after U.K. Prime Minister Theresa May said on Sunday that she would trigger the process of leaving the European Union by the end of March. The U.K. Office for National Statistics said gross domestic product rose 0.7% in the second quarter, up from a previous estimate of 0.6% and compared to expectations for 0.6%. However, on an annual basis, U.K. GDP increased 2.1% in the second quarter, up from a previous estimate of 1.9% but below expectations for a growth rate of 2.2%. A separate report showed that the U.K. current account deficit widened only to £28.7 billion in the last quarter from £27.0 billion in the first quarter, whose figure was revised from a previous estimate of £32.6 billion. The upcoming week is something to look forward to for the pound traders. It is the first week of the month when there is a lot of action in terms of major economic news. We have the UK manufacturing PMI which is to be released on Monday and where a decline is expected. The data post-Brexit has managed to beat market expectations so far and the bulls will be hoping for a repeat of the same on Monday. We also have the construction PMI on Tuesday and then the biggest of all news every month, the NFP coming in on Friday. All these events are expected to add some much needed volatility and liquidity to the markets.

GBP/USD

USD/JPY

Reverses a big figure drop

The Japanese Yen close lower last week with its direction primarily driven by investor demand for risky assets. The USD/JPY finished the week at 101.318, up 0.347 or +0.34%. In the absence of major domestic economic data last week, the USD/JPY started the week lower as trend traders continued to buy the Japanese Yen in reaction to the previous week’s plan by the Bank of Japan to overhaul of its monetary policy. The selling was strong enough to take out the previous week’s low at 100.088, but the move stopped at 100.071 as investors reacted to positively to Democratic candidate Clinton’s performance in the first Presidential debate. Since she is considered the status quo by investors, her victory in the November election will mean business as usual. Trump has been a label a loose cannon and a major risk to the financial markets. The Bank of Japan is seeking to form an appropriate yield curve in order to hit its 2% inflation target under the new monetary easing framework adopted last week, Governor Haruhiko Kuroda said in a speech Thursday. At its next policy meeting Oct. 31-Nov. 1, the BoJ board will review its medium-term growth and inflation outlook through March 2019. Earlier in Japan, a busy day with household spending for August down a sharp 3.7%, compared to a drop of 1.0% seen month-on-month and a decline of 4.6% year-on-year, more than the 2.5% fall seen. It was the 11th fall in the past 12 months. As Thursday's retail sales data showed, spending slowed in August, when typhoon weather kept shoppers away and there was one less weekend compared to a year before. As well, the seasonally adjusted average unemployment rate in August edged up from the previous month to 3.1% but was still close to a 21-year low of 3.0% in July.

USD/JPY

USD/CAD

Drops on strong Canadian GDP data

The U.S. dollar dropped against its Canadian counterpart on Friday, as strong Canadian economic growth data boosted the local currency, while investors were eyeing upcoming U.S. economic reports. Statistics Canada said the country’s gross domestic product rose 0.5% in July, exceeding expectations for a 0.3% uptick and following a growth rate of 0.6% the previous month. Meanwhile, the commodity-related Canadian dollar also found support after the Organization of the Petroleum Exporting Countries said late Wednesday that it agreed to reduce output to a range of 32.5-33.0 million barrels per day, a reduction of 0.7-2.2% from OPEC estimates of its current output at 33.24 million bpd. The pair continued within its broad range last week but looking ahead, we continue to be bullish on this pair. This pair proved to be one of the most volatile pairs last week with good 2-way movement but all within the wider range between 1.3050 and 1.3280. The pair was under the hold of different events. The bad retail sales data which arrived on the Friday before last continued to hold sway on the price and caused a weakening of the CAD during the early part of the week but still the bulls could not break through the wall of sellers at 1.3280.

USD/CAD

Gold

Little changed near 2-week lows

Gold prices erased early gains to end lower on Friday as concerns over the prospect of a U.S. rate hike before the year’s end overshadowed concerns over the health of Deutsche Bank. Safe haven demand for gold waned as Deutsche Bank shares rebounded Friday following reports that it is nearing a deal to settle a mortgage-securities investigation by paying a $5.4 billion fine, well below the Justice Department’s original proposal of $14 billion. Gold prices typically rise during times of political or economic uncertainty, amid expectations that bullion will hold its value better than other assets. For the week, the precious metal ended down 1.79% as markets continued to speculate over the timing of the next Fed rate hike. The Fed raised rates for the first time in almost a decade in December and forecast rates would rise four times this year, but officials have recently acknowledged that the mixed economic recovery means rates are likely to remain lower for longer. The Fed’s next meeting is in November, but a rate hike ahead of the presidential election is seen as unlikely.

Official data showed that the third estimate of U.S. second quarter gross domestic product showed growth of 1.4%, revised from the previous reading of a 1.1% expansion. Analysts had expected a growth rate of 1.3%. Separately, the U.S. Department of Labor said initial jobless claims in the week ending September 24 increased by 3,000 to 254,000 from the previous week’s total of 251,000. Data also showed that the Chicago purchasing managers’ index rose to 54.2 this month from 51.5 the previous month, exceeding expectations for an uptick to 52.0. The U.S. Commerce Department said personal spending was unchanged in August from the prior month, below expectations for a 0.1% rise, and compared to a 0.4% gain in July. In the week ahead, traders will be focusing their attention on Friday’s nonfarm payrolls report, seen by many as the clearest sign on the health of the labor market, amid ongoing speculation over whether U.S. interest rates will rise this year. It is expected to show the economy added 171K jobs in September. The unemployment rate is expected to come in unchanged at 4.9% and average hourly earnings are expected to rise from 0.1% to 0.2%.

GOLD

Crude Oil

Gains on surprise OPEC output deal

Crude oil futures rallied last week after OPEC agreed to cut output in an effort to reduce the world’s supply glut. The announcement of the deal on Wednesday, September 28 surprised traders, triggering a massive short-covering rally that drove the market into its highest close since September 8. The November West Texas Intermediate Crude Oil futures contract finished the week at $48.24, up $3.76 or +8.45%. Earlier in the week it touched a low of $44.19. November Gasoline prices benefited from the news with a rally of its own. The futures contract finished the week at $1.4631, up $0.1074 or +7.92%. Hedge funds were heavily short going into last week’s informal talks held by OPEC and other large exporting members at a meeting in Algiers, leading traders to suspect that it was short-covering rather than new buying that drove the futures contract sharply higher. We’ll find out who was actually behind the move when we get to see the latest Commitment of Trading report from the U.S. Commodity Futures Trading Commission.

For the week, New York-traded oil futures rallied $3.76, or 7.79%, after U.S. crude supplies fell for the fourth week in a row, boosting the demand outlook in the world's largest oil consumer. Market players continued to focus on U.S. drilling prospects, amid indications of a recent recovery in drilling activity. Oilfield services provider Baker Hughes said late Friday that the number of rigs drilling for oil in the U.S. last week rose by 7 to 425, marking the 13th increase in 14 weeks. According to the U.S. Energy Information Administration, crude oil inventories declined by 1.9 million barrels last week, compared with analysts' expectations for an increase of 3.0 million barrels. In the week ahead, oil traders will focus on U.S. stockpile data on Tuesday and Wednesday for fresh supply and demand signals. Market players will also continue to monitor supply disruptions across the world for further indications on the rebalancing of the market.