Weekly Outlook Ending on 14th January 2016
U.S dollar pushed on weekend as U.S sales data Supports.
The dollar continued to trade near one-month lows against the other majors currencies, as the greenback somewhat recovered from earlier losses but remained under solid pressure amid persistent U.S. political concerns. The U.S. Commerce Department reported that retail sales increased 0.6% in December, while November's retail sales were revised upward to reveal a 0.2% rise instead of the previously reported 0.1% gain. In a preliminary report, the University of Michigan said its consumer sentiment index ticked down to 98.1 in January from 98.2 the previous month. Analysts had expected the index to rise to 98.5 this month. The data came after the U.S. Census Bureau said retail sales rose 0.6% in December, disappointing expectations for a 0.7% gain. November’s 0.1% uptick was revised to an increase of 0.2%.Core retail sales, which exclude automobiles, gained 0.2% last month, compared to expectations for a 0.5% climb. A separate report showed that the U.S. producer price index edged up 0.3% in December, in line with expectations and after a 0.4% increase the previous month. Year-on-year, producer prices increased 1.6%, in line with forecasts. But the greenback remained under pressure since U.S. President-elect Donald Trump failed to offer details on his promises to boost fiscal spending and cut taxes at a highly-anticipated news conference on Wednesday. In addition, St. Louis Federal Reserve bank president James Bullard said on Thursday that the election of Donald Trump has not yet switched the U.S. economy to a new "regime" that requires a quick rise in interest rates, which can remain "fairly low" at least through 2017.The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was steady at 101.40, off session lows of 100.97 but still close to the previous session’s one-month low of 100.70.
Euro post gains trading in 5weeks high levels
The euro dropped against the U.S. dollar on Friday, pulling away from a three-and-a-half month high as mostly positive U.S. jobs data lent support to the greenback, while a disappointing economic report weighed on the single currency. EUR/USD hit 1.1116 during U.S. morning trade, the session low; the pair subsequently consolidated at 1.1140, declining 0.60%.The pair was likely to find support at 1.1067, Thursday’s low and resistance at 1.1352, the high of October 22.The Labor Department said the U.S. economy added 151,000 jobs in January, compared to expectations for an increase of 190,000. The economy created 262,000 jobs in December, whose figure was revised from a previously estimated 292,000 gain. The U.S. unemployment rate ticked down to 4.9% last month from 5.0% in December. Analysts had expected the unemployment rate to remain unchanged in January. The report also showed that average hourly earnings rose 0.5% in January, compared to expectations for a 0.3% gain, after a flat reading in December. Separately, data showed that the U.S. trade deficit widened to $43.36 billion in December from $42.23 billion in November, whose figure was revised from a previously estimated deficit of $42.40 billion. Analysts had expected the trade deficit to hit $43.00 billion in December. In the euro zone, data earlier showed that German factory orders fell by 0.7% in December, compared to expectations for a downtick of 0.5%, after a 1.5% increase the previous month.
Pound struggling against dollar pull.
The pound slid lower against the U.S. dollar on Friday, as the greenback regained some ground ahead of a highly-anticipated U.S. employment report due later in the day. GBP/USD hit 1.4515 during European morning trade, the pair’s lowest since February 3; the pair subsequently consolidated at 1.4527, declining 0.42%.Cable was likely to find support at 1.4380, the low of February 3 and resistance at 1.4652, Thursday’s high and a one-month high. The dollar had come under pressure after New York Federal Reserve President William Dudley said on Wednesday that the weakening outlook for the global economy and any further strengthening of the dollar could have "significant consequences" for the health of the U.S. economy. Investors were looking ahead to the U.S. nonfarm payrolls report for January, due later Friday, for fresh indications on the strength of the labor market. Data on Thursday showed that initial jobless claims rose by a larger-than-forecast 8,000 to 285,000 last week, but remained in territory usually associated with a firming labor market. Sterling was also lower against the euro, with EUR/GBP rising 0.26% to 0.7704.In the euro zone, data earlier showed that German factory orders fell by 0.7% in December, compared to expectations for a downtick of 0.5%, after a 1.5% increase the previous month.
Gold rushed to 2months high.
Gold was relatively flat on Friday amid a resurgent dollar, as a relatively optimistic U.S. jobs report provided hawkish members of the Federal Reserve with more ammunition to push for further interest rate hikes as it judges whether economic conditions are strong enough to support continued financial tightening. On the Comex division of the New York Mercantile Exchange, gold for April delivery traded in a broad range between $1,175.60 and $1,163.40 an ounce, before settling at $1,027.60, down 0.10 or 0.01%. At session highs, gold reached a fresh three-month high for the third consecutive trading day. Despite the slight declines, the precious metal posted its strongest week of the year surging more than 3.3%.Since falling to six-year lows in early-December, gold has gained more than $100 an ounce. Gold likely gained support at $1,046.20, the low from December 3 and was met with resistance at $1,182.70, the high from Oct. 28.On Friday morning, the U.S. Department of Labor said nonfarm payrolls increased by 151,000 in January, falling considerably from a downwardly revised 262,000 in December. The sharp declines were blamed in large part to unseasonably warm temperatures over the previous month, which created an unanticipated demand for labor in the construction industry. After two months of robust gains, the headline dipped under 200,000 for the first time since September. The unemployment rate, meanwhile, inched down 0.1% to 4.9%, dropping to its lowest level since February, 2008. The U-6 unemployment rate, a broader gauge of the national employment situation, remained unchanged at 9.9%, one-tenth above its November low when it fell its lowest level since May, 2008. The reading, which measures the total level of unemployed workers plus those marginally attached to the labor force, stood at 11.1% last October. The indicator also accounts for workers who are no longer looking for a job, but have looked for one over the last 12 months. By comparison, the alternative measure of underemployment peaked at 18% in January, 2010, as the nation continued to recover from the Financial Crisis. The U-6 rate is a preferred measure of unemployment by Fed chair Janet Yellen as she assesses the strength of the U.S. labor market. The strength in the report lies in the average wages category where hourly earnings jumped by 0.5%, amid major increases in state minimum wage floors in numerous regions throughout the country. On an annual basis, wages are up by 2.5% from their January, 2015 level. An increase in wage-push inflation could be viewed as a signal from the Fed that prices throughout the economy are ready to move upward. Last month, Core PCE inflation came in at 1.4%, significantly below the U.S. central bank's targeted objective of 2%. The Core PCE Index, which strips out volatile food and energy prices, is the Fed's preferred gauge for inflation. As sluggish inflation remains low, the Fed is wary of potentially triggering a deflationary spiral by tightening its cycle too abruptly. In December, the Federal Open Market Committee (FOMC) abandoned a seven-year zero interest rate policy by raising short-term interest rates for the first time in nearly a decade. While the Fed signaled in early-January that it could hike rates as much as four times this year, the FOMC said in its monetary policy statement last month that it could proceed more gradually if the global economy continued to struggle and long-term inflation projections remained far below its target. Any rate hikes this year are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in rising rate environments.
Crude sell off pushes to near $53 levels
Crude futures fell by more than 2% amid a recovering dollar, as a late sell-off pushed domestic oil prices back toward $53 a barrel. On the New York Mercantile Exchange, WTI crude for March delivery traded between $30.80 and $32.42 a barrel, before settling at $30.88, down 0.84 or 2.66% on the day. In spite of a massive spike of 8% on Wednesday, WTI crude still ended the week down by nearly $3 a barrel. On the Intercontinental Exchange (ICE), Brent crude for April delivery wavered between $53.81 and $54.12 a barrel, before closing at $54.02, down 0.44 or 1.28% on the session. Brent suffered less damage than their U.S. counterpart on the week, falling approximately 2.75% from its opening level on Monday. Both the international and U.S. benchmarks of crude remain near 12-year lows from last month, when WTI traded at $26.19 on Jan. 20 and Brent nearly dipped below $27. Over the last 18 months, crude futures have crashed more than 70% amid a massive supply glut worldwide. Although Friday's session lacked the sudden, unpredictable fluctuations that have defined the oil trade since the start of the New Year, investors anticipate that volatility will remain high in the near-term. Analysts from Jeffries said on Friday that investors should expect "elevated volatility" over the next week on "upward moves from short covering." Earlier this week, net short positions in WTI crude rose to a fresh 30-month high. When the International Energy Agency (IEA) released its December oil market report this week, the Paris-based group said Non-OPEC oil supply slipped by 0.6 million barrels per day to 57.4 million on the month, lending support for sharp production declines this year. For 2016, the IEA expects Non-OPEC supply to fall dramatically by an average of 0.7 million bpd. More troubling, may be the unexpected declines in demand growth by Non-OPEC members at the end of last year. During the fourth quarter, Non-OPEC demand growth decelerated to a one-year low of 1.0 million bpd, down from near five-year highs of 2.1 million bpd over the previous three months. Consumer demand evaporated in the final months of 2015, in the face of weak economic sentiment among major world powers such as Russia, China and Brazil. Investors are cautiously optimistic that demand can remain steady this year, as global supply hovers near record-highs. Oil prices rallied this week after reports surfaced that OPEC could hold an emergency meeting later this month to discuss potential production cuts. The rebound, however, was short-lived, as a group of six OPEC members clamoring for the meeting reportedly have been unable to win support from Saudi Arabia, the world's largest exporter. Markets in China will be closed for the majority of next week due to the Lunar New Year holiday. China is the world's largest consumer of oil behind the U.S The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, gained more than 0.60% to an intraday high of 97.29. Previously, the index had slumped over 3% this week as investors braced for a disappointing employment report.
U.S. stocks and S&P 500 drops on weekend.
It was negative week for U.S. equities. Starting with the U.S. stocks; Dow Jones fell 261 points and lost 1.59%. Nasdaq Composite lost 5.44% and fell 251 point. S&P 500 fell 60 points and lost 3.10% for the week.
Coming to European counterparts, UK’s FTSE 100 fell 236 points and lost 3.88%. German DAX 30 also fell 512 points and lost 5.23%. Additionally French CAC 40 fell 216 points and lost 4.89% on the weekly basis.
In commodities Gold surged $58 and gained 5.16% while Crude Oil fell $2.62 and lost 7.79% over the week.
Euro gain 0.04% over the week while Yen loss 4.26 %. 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.