Weekly Outlook Ending on 24th September 2016
U.S dollar trims loss and trading steady on weekend.
The dollar was steady against the other major currencies on Friday, but was on course for a weekly loss after the Federal Reserve cut its long range interest rate forecast and the Bank of Japan rebooted its monetary policy framework. In Europe, data showed euro zone business activity expanding in September at its weakest pace since the start of 2015. But it was little surprise and had limited impact on policy expectations and the single currency. The dollar index was subdued at 95.397 (DXY), while the euro was up 0.1 percent against the dollar at $1.1215. The U.S. currency was flat at 100.70 yen, not far from a nearly four-week low of 100.10 struck on Thursday and on course to shed more than 1 percent for the week. “The Fed lowering its medium-term rate guidance path while keeping a rate hike in play at the end of this year has left the dollar very finely balanced," said Yujiro Go to, currency strategist at Nomura. The Federal Reserve projected a less aggressive rise in rates next year and in 2018, and cut its longer-run interest rate forecast to 2.9 percent from 3.0 percent. Traders said the focus was moving to the first televised U.S. presidential debate early next week. Markets are mostly expecting Democratic candidate Hillary Clinton to win the presidency and have not factored in the implications of a victory for Donald Trump. "Indeed, we believe that the markets are rather complacent about the outcome of the elections and expect growing uncertainty ahead of the 8 November vote to add to the dollar headwinds," Credit Agricole analysts said in a note..
Euro ends slightly higher in weekly trade.
The euro was almost unchanged against the U.S. dollar on Friday, after the release of mixed manufacturing and service sector data from the euro zone as investors continued to digest the Federal Reserve’s decision to leave interest rates unchanged this week. EUR/USD 1.1194 during European morning trade, the session low; the pair subsequently consolidated at 1.1202.The pair was likely to find support at 1.1118, the low of September 21 and a five-week low and resistance at 1.1258, Thursday’s high. Research group Markit said its German manufacturing purchasing managers’ index rose to 54.3 in September from 53.6 the previous month, beating expectations for a downtick to 53.1.However, the German services PMI slipped to 50.6 this month from 51.7 in August. Markit also reported that its French manufacturing PMI increased to 49.5 in September from 48.3 in August, compared to expectations for a rise to 48.4.The French services PMI advanced to 54.1 this month from 52.3 in August. For the entire euro zone, the composite PMI, which includes both manufacturing and service sector activity, slipped to 52.6 in September from 52.8 the previous month? Analysts had expected the index to remain unchanged. Meanwhile, the greenback slightly recovered from broad losses posted after the Fed decided on Wednesday to leave interest rates unchanged and projected a less aggressive rise in interest rates next year and in 2018.. Meanwhile, average hourly wages increased by 0.3% last month, in line with consensus estimates. The Labor Force Participation Rate fell by 0.2% to 62.8%, while the average workweek stayed unchanged at 34.5 hours per week. While the Fed has voiced concern with the sluggish pace of inflation over the last several months, the U.S. central bank had expressed optimism with the broad improvement in the labor market prior to Friday's report. In April, the FOMC said in its monetary policy statement that it will take a data-driven approach with the timing of its next interest rate hike. The FOMC's benchmark Federal Funds Rate has remained at its current level between 0.25 and 0.50% at each of the Fed's three meetings this year. In December, the Fed ended a seven-year zero interest rate policy by approving its first rate hike in nearly a decade.
Pound recovers against Dollar.
The pound slipped to a fresh one-month low against the U.S. dollar, despite the release of upbeat U.K. data as investors remained cautious ahead of the Federal Reserve’s policy decision due later in the day. GBP/USD hit 1.2946 during European morning trade, the pair’s lowest since August 16; the pair subsequently consolidated at 1.2976, slipping 0.10%.Cable was likely to find support at 1.2871, the low of August 16 and resistance at 1.3092, the high of September 19.Markets shrugged off a report by the U.K. Office for National Statistics saying that public sector net borrowing rose by £10.05 billion in August, compared to expectations for an increase of £10.30 billion. Public sector net borrowing declined by £2.43 billion in July, whose figure was revised from a previously estimated £1.47 billion drop. Investors remained cautious ahead of the Fed’s monthly policy decision, due later Wednesday. Although most traders expect the U.S. central bank to hold back from raising interest rates this month, any comments regarding the Fed’s future policy moves will be closely watched. The pound also hit one-month lows against the yen, with USD/JPY at 132.15 after the Bank of Japan earlier said it was abandoning its target to increase the monetary base and left interest rates unchanged at minus 0.1%.The BoJ instead adopted "yield curve control" under which it will buy long-term government bonds to keep 10-year bond yields at current levels around 0%.The central bank also said it would continue to buy long-term government bonds at a pace that ensures its holdings increase by ¥80 trillion per year..
Gold rushed in 2-week high as fed hold the rate hike.
Gold prices extended overnight gains touching a fresh two-week peak as the U.S. dollar sold off after the Federal Reserve held off on raising interest rates and scaled back the number of rate hikes it expects next year. Gold for December delivery on the Comex division of the New York Mercantile Exchange jumped to an intraday peak of $1,342.05 a troy ounce, the most since September 8.It was last at $1,340.85 by 8:35AM ET, up $9.45, or 0.71%, after climbing $13.20, or 1%. The Fed left interest rates unchanged at the conclusion of its policy meeting on Wednesday, but hinted that a hike could come in December if the job market continued to improve. At the same time, the U.S. central bank also cut the number of rate hikes it expects next year and in 2018, according to the median projection of forecasts released with its post-meeting statement. The Fed has policy meetings scheduled in early November and mid-December. Economists believe policymakers would avoid a rate hike in November in part because the meeting falls just days before the U.S. presidential election. Gold prices rallied after the Fed decided on Wednesday to hold interest rates and projected a less aggressive rise in interest rates next year and in 2018.However, the U.S. central bank signaled that it could tighten monetary policy before the end of the year if the job market continued to improve. Gold is sensitive to moves in U.S. rates. A gradual path to higher rates is seen as less of a threat to gold prices than a swift series of increases.
Crude moves higher on reducing output proposal.
U.S. oil futures moved higher on Friday, as upbeat U.S. stockpile data continued to support and as an offer by Saudi Arabia to reduce output added to hopes for an upcoming deal between major’s producers. U.S. crude futures for November delivery were up 0.19% at a fresh two-week high of $46.41 a barrel. On the ICE Futures Exchange in London, the November Brent contract gained 0.84% to $48.05 a barrel, the highest since September 13.Oil prices gained more ground following reports Saudi Arabia has offered to reduce oil production if Iran agrees to cap its own output this year, in a major compromise ahead of talks in Algeria next week. Hopes for a potential deal to freeze output to support the market have been mounting ahead of a meeting between OPEC and non-OPEC members scheduled from September 26 to 28.The commodity also remained supported after the U.S. Energy Information Administration said crude oil inventories fell by 6.2 million barrels last week to 504.6 million, surprising market analysts who expected an increase of 3.35 million barrels. Meanwhile, sentiment on the the U.S. dollar remained fragile after the Federal Reserve decided on Wednesday to leave interest rates unchanged and projected a less aggressive rise in interest rates next year and in 2018.However, the U.S. central bank signaled that it could tighten monetary policy before the end of the year if the job market continued to improve. Oil prices typically strengthen when the U.S. currency weakens as the dollar-priced commodity becomes cheaper for holders of other currencies. Oil prices worldwide gained 1% a day earlier, amid reports that the disaster forced approximately 640,000 barrels offline. In total, as much as 1 million barrels of Canadian oil could be taken offline temporarily, the Wall Street Journal reported.
U.S. stocks and S&P 500 gained on weekend.
It was negative week for U.S. equities. Starting with the U.S. stocks; Dow Jones gained 51 points and lost .28%. Nasdaq Composite gained 0.82% and 44 point. S&P 500 gained 17 points and 0.82% for the week.
Coming to European counterparts, UK’s FTSE 100 gained 121 points and 1.75%. German DAX 30 also gained 276 points and 2.60%. Additionally French CAC 40 gained 105 points and 2.33% on the weekly basis.
In commodities Gold loss $26 and gained 2.04 % while Crude Oil gained $1.93 and 4.19% over the week.
Euro gain 0.04% over the week while Yen gain 0.26 %. Pound gain 0.07% and dollar index suffered 2.58% on this week.
Note: Here all the currencies are measured in percentage against the U.S. dollar.