Weekly Outlook Ending on 19th August 2016
U.S dollar weekly declines to 2-month low but remains broadly supported ahead of FED meeting next month.
The U.S. Dollar Index rallied on Friday from near two-month lows from the previous session, as investors digested a fresh batch of comments from key Federal Reserve policymakers on the possibility of a near-term interest rate hike by the U.S. central bank.
The index, which measures the strength of the greenback versus a basket of six other major currencies, rose as much as 0.40% on Friday before ending the U.S. afternoon session at 94.48, up 0.0029 on the day. With the sharp gains, the index is on pace to end a five-day losing streak. The index has plummeted more than 2.15% over the last month and has fallen by more than 4.3% since the start of the year.
Foreign exchange traders could be bracing for a period of cautious, sideways trading next week, ahead of Fed chair Janet Yellen's appearance at a closely-watched speech next Friday in Jackson Hole, Wyoming. The comments from the Fed chair could shed light on the U.S. central bank's opaque long-term monetary policy forecast, which has been clouded by diverging views from participants over the last few weeks on the timing of its next rate hike.
When the minutes from the Federal Open Market Committee's (FOMC) July meeting were released on Wednesday, some participants felt that it could be appropriate to raise short-term rates in the coming months, while others were more hesitant due to below target inflation.
The FOMC's benchmark Federal Funds Rate has remained at a range between 0.25 and 0.50% in each of their five meetings in 2016.On Friday, Federal Reserve of Dallas President Rob Kaplan said the Fed's decision could be complicated by a low neutral rate, which takes into account the Federal Funds Rate minus a measure of inflation.
Euro post gains on weekly session, holds on 8 week high.
Euro modest gains on weekly session, as minutes from the Federal Reserve's July meeting showed a bias among policymakers against raising interest rates soon.
The minutes showed members of the rate-setting Federal Open Market Committee were generally upbeat about the U.S. economic outlook. Several Fed policymakers, however, said a slowdown in the future pace of hiring would argue against a near-term hike, and FOMC members said they wanted to "leave their policy options open."
The minutes disappointed those expecting that the Fed could be turning more hawkish. Those expectations had been bolstered by comments from New York Fed chief William Dudley on Tuesday, who said the central bank could possibly raise rates as soon as September.
Dudley on Thursday reinforced his message on the broader economy being on track. While the dollar initially pared losses, it soon shrugged off the remarks and extended losses in the afternoon trading session.
"(Dudley) said his views haven't changed, but at this point, I think the market has sort of bought back into the dovish Fed story," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York.
The euro hit a session high of $1.1356 and the dollar touched a session low against the franc of 0.9540 franc.
Pound holds week high, slides on weekend session.
The pound slid lower against the U.S. dollar on Friday, despite the release of positive data from the U.K., as Thursday’s upbeat U.S. economic reports continued to lend support to the greenback.
GBP/USD hit 1.3112 during European morning trade, the session low; the pair subsequently consolidated at 1.3115, declining 0.43%.
Cable was likely to find support at 1.2976, Wednesday’s low and resistance at 1.3449, the high of August 4.
The U.K. Office for National Statistics said that public sector net borrowing declined by £1.47 billion in July, compared to expectations for a £1.20 billion fall.
Public sector net borrowing increased by £7.51 billion in June, whose figure was revised from a previously estimated £7.31 billion gain.
But the dollar remained supported after data on Thursday showed that initial jobless claims decreased by 4,000 to 262,000 last week, compared to expectations for a 1,000 decline to 265,000.
Separately, the Federal Reserve Bank of Philadelphia said that its manufacturing index rose to 2.0 this month from July’s reading of minus 2.9, in line with the consensus estimate..
Gold up temporary investors awaits Janet Yellen’s appearance on coming Friday
Gold fell sharply amid a resurgent dollar, as investors await a highly-anticipated appearance from Janet Yellen at next week's monetary policy symposium in Jackson Hole for more clarity on the Federal Reserve's uncertain interest rate outlook.
On the Comex division of the New York Mercantile Exchange, Gold for December delivery traded between $1,342.05 and $1,357.80 an ounce before settling at $1,346.25, down 10.95 or 0.81% on the session. Gold closed relatively flat for the week after failing to post a single move of 1% from the previous day's close in tight, range-bound trade.
Since opening the year around $1,075 an ounce, the precious metal has soared approximately 25% over the first seven months of 2016 and is on pace for one of its strongest years in the last three decades.
Gold likely gained support at $1,312.80, the low from July 21 and was met with resistance at $1,374.90, the high from July 6.Metal traders could be in store for another stretch of cautious, sideways trading next week, ahead of Yellen's appearance in Wyoming at a closely-watched speech next Friday. The comments from the Fed chair could shed light on the U.S. central bank's opaque long-term monetary policy forecast, which has been clouded by diverging views from participants over the last few weeks on the timing of its next rate hike.
Crude post strong weekly gain of the year and ends with 7 week High.
Crude surged near seven-week highs following a choppy, volatile session on Friday, as energy traders largely shrugged off a considerable increase in U.S. oil rigs last week.
On the New York Mercantile Exchange, WTI crude for September delivery traded between $47.94 and $48.74 a barrel before closing at $48.45, up 0.23 or 0.48% on the session. At session-highs, the front month contract for U.S. crude hit its highest level since July 5. On the Intercontinental Exchange, Brent crude for October delivery wavered between $50.34 and $51.22 a barrel, before settling at $50.82, down 0.05 or 0.10% on the day. During the previous session, Brent futures eclipsed the $50 level for the first time since early-July.
For the week, both the international and U.S. benchmarks of crude surged by more than 8%.On Friday afternoon, oil services firm Baker Hughes said that the U.S. weekly oil rig count rose by 10 to 406 last week. The number of oil rigs nationwide has increased in each of the last eight. Following last week's considerable gains, the oil rig count is now at its highest level since February 19. Any increases in the U.S. oil rig count typically provide lagging indication that domestic production could be on the verge of climbing.
Crude futures have raised almost $10 a barrel since early August on speculation that Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries will agree next month to a production freeze deal with non-OPEC producers led by Russia.
The rally has propelled oil into bull market territory, after technical had it in a bear market early this month.
"We would argue that improved fundamentals are not a key reason for the recent price bounce," analysts at Morgan Stanley said in a note. "Crude oil demand is anemic, gasoline demand has decelerated globally, and China crude oil imports are likely to decelerate."
OPEC will hold an informal meeting in Algeria next month with outside producers led by Russia. Some have speculated about a production sharing deal, with Saudi Arabia helping stoke much of that perception despite scuttling a similar plan in April.
Others, including OPEC member Nigeria, do not think there will be a deal. Many analysts and traders also argue the current rally will not last.
It was negative week for U.S. equities. Starting with the U.S. stocks; Dow Jones fell 96 points and lost 0.51%. Nasdaq Composite lost 0.29% and fell 15 point. S&P 500 fell 7 points and lost 0.32% for the week.
Coming to European counterparts, UK’s FTSE 100 fell 41 points and lost 0.60%. German DAX 30 also fell 188 points and lost 1.78%. Additionally French CAC 40 fell 106 points and lost 2.41% on the weekly basis.
In commodities Gold gains $6 and 0.48% while Crude Oil added $3.74 and 7.61% over the week.
Euro made 1.06% over the week while Yen also made 1.73%. Pound made 0.59% while Ice dollar index fell 1.83% on this week.
Note: Here all the currencies are measured in percentage against the U.S. dollar.