Last Week Recap

The US Dollar lost considerable ground against the Pound and EURO early last week with both currencies breaking through the physiological resistance barriers of 1.70 and 1.44 respectively. Data out of Europe this week included German Retail Sales, which came in at a surprisingly negative reading of -1.8% compared with a previous of -1.3% and Euro Zone Retail Sales which peaked at -0.2% compared with a previous reading of -0.5%. Despite this mixed bag of data, it has still not provided any additional signs to the market of when the European economy is expected to drag itself out of the current economic crisis. As expected mid week, the Bank of England and the European Central Bank left their officials cash rates on hold with both expressing in the accompanying statement that rates were at appropriate levels. Friday's release of US Non Farm Payrolls for July (actual -247k; forecast -328k; previous -467k) had an immediate impact on the Greenback with the big dollar gaining against the YEN and EURO (this being despite a surplus in the German Current and a strong showing German Industrial Production). Adding further direction for the rally was a 0.1% decrease in the US official unemployment rate which ticked down from 9.5% to 9.4% its best reading in almost 15 months. Against the YEN, the US Dollar has broken through the 97 level and spiked almost immediately on release of the US Employment data eventually hitting a high of 97.80 before closing marginally lower in New York trade at 97.59. A return to safe haven assets has propelled a return by investors to the Greenback as it may possibly signal a belief that the US is poised to exit the recession before the UK, Europe and Japan.

It was a volatile week last week for the Pound. Following better than expected UK manufacturing data on Monday and Wednesday GBP/USD pushed higher. Solid profit results released by Barclays and HSBC earlier in the week also served to support the Pound, which eventually traded to a 10 month high of 1.7040 against the US Dollar on Wednesday. A correction lower however came on Thursday following the Bank of England decision to extend quantitative easing by ?50 billion to ?175 billion. Markets were surprised by the news and GBP/USD fell back towards 1.6720 which is where it finished the week on Friday.

The Australian Dollar continues to hold its ground against the Greenback with it only slipping below the 0.84 cents mark twice last week. The dollar roared to a 10 month high of 0.8458 with the low of the week being 0.8360. As expected last Tuesday the Reserve Bank of Australia kept the official cash rate on hold at 3% adding economic conditions in Australia have been stronger than expected a few months ago, with both consumer spending and exports notable for their resilience. The RBA made no mention of hiking interest rates in the short to medium term but did mention that they will continue to monitor the local economy and act accordingly. Other data that was AUD supportive was Tuesday Retail Sales number for June which fell 1.4% for the month but surged overall throughout the April to June period. Wednesday's Trade Balance (actual -$441M; forecast -$800M) and Thursdays Unemployment Rate for July (remained unchanged at 5.8% with the participation component up 32,200 compared with a forecast of -18,000) did little to sway the local markets appetite and saw the little battle traded within 20/30 pip range.

The New Zealand Dollar traded within a 2 cent range last week hitting a high of 0.6760 against the Greenback, its highest level since October 2008. A return to riskier assets and broader USD weakness continue to attract investors into high yielding currencies like the NZD, AUD and ZAR. On the data front, the Unemployment Rate for the Quarter 2 increased from 5% to 6% (forecast 5.7%) hampering any Kiwi advances towards 0.68 cents on Wednesday. The recent surge in the currency has not boded well with RBNZ officials of late with many saying that the current levels are undesirable and will possibly risk any positive turnaround in the local economy which has already experienced several quarters of negative growth.

Last week we saw the Canadian economy record a three times greater than expected increase in the unemployment rate, as 44,500 Canadians losing their job in the month of July. The result saw the market react immediately with a 100 point rally by the Greenback and with the retracement in the commodity markets the big dollar was able to finish the week high note. USD was able to break though the technical resistance level of 1.0800 reaching a high for the week of 1.0865 - a close above the 1.0800 level should likely indicate further strength and a push towards 1.0950 area.

The Week Ahead

USD: The big dollar finished stronger against the other major currencies last week on the back of a rise in Non Farm Payrolls from the previous month from -328K to -247K. On the data front the early part of the week is fairly light with no significant releases due until mid week starting with Wednesday's FOMC Interest Rate Decision where the Fed is likely to keep rates on hold for another month at 0.25%. Also on Wednesday we see the release of US Trade Balance data for the month of June. On Thursday is the release of Retail Sales data for the month of July with forecast for the figure to be down from the previous month from 0.6% to 0.5%. Retail Sales data will be closely watched by traders as consumer spending accounts for almost 70% of the US economy. Finally on Friday is the release of Consumer Price Index and Industrial Production data both for the month of July.

AUD: Despite starting the week a little lower the outlook for the Australian Dollar remains bullish after some positive economic forecasts from the Reserve bank of Australia last week. A fairly light week is expected on the data front starting with Tuesday's NAB Business Confidence Survey for the month of July. The survey's findings, if unexpected, have the power to move markets directly. On Wednesday is the release of Westpac Consumer Confidence survey for the month of August. AUD/USD support comes in at 0.8250 whilst there is resistance at 0.8450.

NZD: The week ahead the Kiwi Dollar will no doubt take direction from further risk appetite and off shore events. On the data front it begins on Tuesday with the release of the Business Performance of manufacturing Index for the month of July. On Thursday is the release of Food prices for the month of July. Friday sees the release of Retail Sales data for the month of June. The retail sales data is likely to be the most market moving. NZD/USD support comes in at 0.6683 whilst there is resistance at 0.6823

GBP: Early this week markets are likely to still be absorbing the better than expected US Non Farm Payrolls data released last Friday. This could in turn support demand for riskier trades throughout the week which could aid any mild recovery in GBP/USD. The focus data wise will be on the BoE Inflation Report on Wednesday and the US FOMC Statement that evening. Other than that UK economic data is lacking. Although volatility is expected to continue support in GBP/USD comes in at 1.6590 whilst resistance is still forming and is likely to be somewhere close to but shy of 1.7000.

EUR: The Euro finished the week weaker against its major counterparts after a surge from the US Dollar on Friday night due to the Non Farm Payrolls release. On the data front this week it all starts on Wednesday with the release of Euro Zone Industrial Production data for the month of June. This data measures the volume change of output of the manufacturing and energy sector. On Thursday is the release of Euro Zone Gross Domestic Product for Q2. This data is expected to still be very weak, with a slower pace of contraction than in Q4 and Q1 from -4.9% to -5.1%. Finally on Friday is the release of Euro Zone Consumer Price Index which is expected to remain at -0.6% for the month of July.

JPY: The Japanese Yen looks vulnerable this week against the U.S dollar as the Greenback surged across the board on the back of positive data. Japan data this week is unlikely to have much of an effect on the direction of its currency. On Monday is the release of Machine Orders and Current Account for the month of June. Machine Orders is considered the best leading indicator of business capital spending, and increases are indicative of stronger business confidence and a better forward outlook. On Tuesday is the bank of Japan Interest Rate decision with expectations that Interest rates will be left on hold for another month at 0.10%. On Wednesday is the release of Consumer Confidence for the month of July. Finally on Friday is the release of the Bank of Japan Monetary Policy Meeting Minutes.

CAD: This week will be data intensive in North America, in Canada we see Housing Starts and Trade balance released on Tuesday and Wednesday respectively. The US markets will economists focused on trade balance, retail sales and Inflation announcements on days of Wednesday, Thursday and Friday. Given the increase in unemployment, housing starts in Canada should be flat and increasing demand in commodity markets should also assist in a healthy Canadian trade balance for July. Look to the US data announcements to provide direction from Wednesday onwards.

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