Daily Report: EUR/USD, GBP/USD, USD/JPY And XAU/USD : October 29, 2014
iFOREX | Oct 29, 2014 05:47AM ET
The U.S. Dollar traded up and down but then dropped on Monday as the markets prepared for the start of the Federal Reserve's meeting; and it rose on Tuesday even though reports issued the previous day were rather disappointing. The publications indicated that activities in the U.S. Services sector declined, that Pending Home Sales printed lower than predicted, and that Business Confidence went down. According to the research firm, Markit Economics, the Services PMI came in at 57.3 for October after a reading of 58.9 in September. Pending Home Sales missed expectations by posting a rise of 0.3 percent instead of the forecast 0.5 percent. The greenback had sustained two consecutive days of declines versus several of the majors as market traders speculated that the Federal Reserve will announce its intentions to maintain the interest rates at the current low for an extended period while it puts an end to quantitative easing. On the data front, on Tuesday, the U.S. Commerce Department announced that Durable Goods Orders declined 1.3 percent last month, missing forecasts for an increase of 0.5 percent. Core Durable Goods Orders which exclude transportation items fell 0.2 percent in the same period, failing to gain the predicted 0.5 percent. The numbers prompted the greenback to sip to a one-week low versus most of its counterparts.
Gold Prices rebounded, rising from a two-week low, as the shiny commodity fared better while many investors stayed to the sidelines. Physical demand for the metal has increased, but its value was mostly supported by speculation that the central bank will keep the borrowing costs unchanged, and won't offer clues as to when this could change.
The Euro continued to enjoy from the stellar news delivered by the European Central Bank. It revealed that the stress test performed on 130 of the periphery's financial institutions fared better than forecast. However, the Euro's rally was limited due to reports out of Germany pointing to a drop in the IFO Business Sentiment. Today, Mario Draghi, the head of the ECB will reveal the bank's plan and will provide information on how aggressive the new measures will be. He will also indicate how much they've spend on covered bonds since returning to that market in an effort to fight deflationary pressures. In the meantime, experts worry that Germany's IFO business indicator could print worse in the near future, although many economists expect the opposite given the improvement in the manufacturing sector. If that is the case, it will signal that the E.U.'s leading economy is on the path towards recovery.
The British Pound fell against the greenback as the U.S. currency shifted to the upside while investors waited for the outcome of the FOMC meeting. But the U.S. Dollar remained under pressure on concerns over the possibility of the spread Ebola, and the likelihood that a slowdown in China and the Euro-zone could convince the U.S. policy makers to adhere to the status quo for some time to come.
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The Yen traded to the downside against the Euro and the greenback shrugging off stellar reports on Retail Sales. With the release of the data, speculators anticipate that the Bank of Japan will leave stimulus unchanged, but it may suggest to Shinzo Abe, the country's Prime Minister that the proposed sales tax hike for next year won't have a negative effect on the economy.
The Australian Dollar extended gains against the U.S. Dollar as the markets sought commodity currencies in the early trading hours. New Zealand's Dollar surged a few pips after the greenback eased slightly subsequent to the lackluster Pending Home Sales announcement. The South Pacific currencies were under pressure due to comments out of China denoting that the government expects annual growth to come in at 7.3 percent for the year, suggesting a deterioration of the growth outlook. Even though economic expansion came in better than predicted in the third quarter, the recent data has cast doubt that it will print stronger in the final three months of the year. The real estate market has continued to dampen the economy, and this was evident in the Q3 metrics which pointed to the lowest level of growth in five years.
EUR/USD-Employment Seekers Concerned
The EUR/USD traded mixed ahead of the Federal Reserve's rate statement. In the Euro region, reports show that employment seekers are very disappointed since the level of growth is not conducive for finding a job. Confidence in the Euro-zone's economy has plunged dramatically and the rate of Unemployment continues to post at 11.5 percent. Furthermore, a drop in demand is causing consumer prices to stay to the downside. Analysts believe that inflation could come in below 1 percent for a 13th month in a row. In light of the situation, policy makers are trying to find the solution while staying calm. The European Central Bank expanded stimulus in September, and is about to announce what it will do in the weeks ahead. Countries such as Italy, France and Spain have reported that the jobless rate is above ten percent, and economists predict that the level will remain at 11.3 percent in the coming year. The weakness of the Euro region's economy has spread to Germany, as evidenced by the Business Confidence index which plummeted to the lowest since December of 2012. The IFO Index registered a drop from 104.7 to 103.2. The Bundesbank has stated that growth in the next quarter will be "meager." And even though Manufacturing activities fared better this month, demand has dropped, prompting companies to lay-off high numbers of workers for the first time in close to twelve months. In the next few days, the E.U. will issue metrics on German Unemployment as well as on the region's Inflation. The EUR/USD rose after the central bank announced that it bought 1.7 billion Euros in covered bonds in the past week.
GBP/USD-McCafferty Urges Bank
The GBP/USD declined, erasing some of Monday's gains. In the U.K., the Deputy Governor of the Bank of England has stated that she does not believe that low inflation is hurting the British economy, but she has raised the bar for increasing the costs of borrowing money. On the opposite side, Ian McCafferty, one of the bank's policy makers has urged the central bank to boost the key cash rate. He indicated that the economy's spare capacity could dissipate by mid-2015, and this may have an impact on inflation. His statements followed lackluster economic announcements out of the U.K. which confirmed that inflation is at 1.2 percent, the lowest in sixty months, and well beneath the bank's inflation target. Mr. McCafferty added that salaries are likely to grow in the coming months as the rate of joblessness dropped to 6 percent. A year ago, the Unemployment rate stood at 7.7 percent; but today, indicators signal that the British economy is likely to expand.
USD/JPY-Japan Struggles With Decisions
The USD/JPY slumped, but rose on Tuesday as the markets braised for whatever the Federal Reserve announces. In Japan, economists say that the negative effects of the April sales tax hike and the impact of Shinzo Abe's economic plans are offsetting each other. Experts believe that Industrial Output could print better than in previous months, but they have little hope for an increase in Inflation. The Unemployment rate has gone up, but there's much uncertainty about the Bank of Japan's policy decisions. Prime Minister, Shinzo Abe is mulling over whether to boost the sales tax again since the economy shrank an annualized 7.1 percent in the second quarter. Most Japanese officials say that the tax increase should be delayed until 2017. But the country's Finance Minister and many of the corporations are of the opposite opinion. They've urged Mr. Abe to go ahead with the tax hike as they predict that such move could help Japan bring down its debt burden, which is the biggest among the industrial nations.
XAU/USD-Gold Regains Footing
The XAU/USD rebounded on Tuesday and retreated from a pervious two-week low. The shiny metal fluctuated between gains and losses as the Federal Reserve's meeting began. And despite the rally in equity indices, the hike in bond yields, and the strengthening of the greenback, the XAU/USD was flat for most part of last week. Meanwhile, in Switzerland, economists predict that he country is about to approve the Swiss Gold Referendum. This means that the Swiss National Bank would buy big amounts of gold. Even though there's been a surge in demand for gold in China, and India has commenced the celebration of the Diwali festivities, which normally leads to huge increases in gold purchases, investors have not placed their confidence in the commodity. Bullion for immediate delivery traded at $1,227.92 in London. And Futures for December delivery reached $1,227.50 a troy ounce on the Comex
Today's Outlook
Today's economic calendar shows that the U.K. will report on Mortgage Approvals. The U.S. will issue the FOMC Statement and Interest Rate Decision. New Zealand's Reserve Bank will also publish the Rate Statement and will offer the Interest Rate Decision. Lastly, Australia is set to announce HIA New Home Sales as well as the Export and Import Indices.
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