Forex recommendations from Hantec FX's market analyst, who offers expert analysis and tips on the EUR/USD, AUD/USD and USD/CAD – as well as the gold price
EUR/USD: A strong beginning and end for the pair helped the euro move away from its recent lows in what was an otherwise uninspiring week. An expeditious start to proceedings saw the euro briefly dip below the crucial US$1.3000 support level.
After failing to trigger the stops below, the pair staged a savage reversal as an impulsive short-squeeze rifled the euro to US$1.3147 highs. With analysts baffled, the move was seemingly attributed to technical buying headed by the leveraged community.
Subsequent to this event, the pair oscillated between US$1.3050/3170 range mode frustrating markets as investors searched for the next direction. Spain grabbed most of the headlines mid-week ahead of the highly anticipated bond auction. Initially an auction of short-term bills, that was well received, supported the euro before growing concerns over its debt problems reined in its advances.
The auction for 10-year Spanish bonds resulted in yields reaching 5.74%, however the outcome fell in line with expectations and other than a quick run to US$1.3069 low, the euro remained well supported as a result of poor unemployment data from the US.
On Friday, a German Ifo business sentiment report acted as the catalyst for another break higher, with news of a G20 pledge to strengthen the IMF’s firewall contributing to the rally. The euro ended the week above US$1.3200, defeating the stale range in had been restrained within.
It is likely the euro will remain range-bound against the dollar as rising concerns over Spain are counter-balanced by potential for QE3 in the US.
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The focus for the Aussie dollar this week was the release of Reserve Bank of Australia (RBA) minutes, with investors eyeing further clarity on future rate cuts. Before these however, the week began positively for the pair as it managed to catch some of the shift higher across other riskier currencies. It could only force a US$1.0379 high and this was quickly overturned.
The meeting minutes sprang no surprises on the market, again reiterating the RBAs focus on the inflationary outlook as the driver for a rates cut. The pair sold-off to US$1.0305 low following the slightly dovish minutes.
After reaching the week’s low, an enduring risk rally, triggered by a good Spanish bills auction, elevated the pair to the week’s high. Strong US earnings added tail wind and with the market wrong footed, it hit US$1.0418. The pair became very familiar with the side-lines thereafter, with the announcement of RRR cut by China central bank causing the only ripple.
Rumours of a French downgrade dragged the pair away from its highs, before markets ended the week with a return to risk following positive news flows from Europe. It eventually ended the week slightly higher at US$1.0369.
It is likely the Australian dollar will weaken against the US dollar with RBA policy heading for a rate-cut, however it will find support if China manages a soft landing.
Similar to the Australian dollar, the focus for the 'Loonie' was a release from the central bank. This came in the form of the Bank of Canada (BoC) policy statement which was much more sanguine than the aforementioned RBA minutes. While they held the base rate, meeting expectations, hawkish comments triggered a wave of selling.
Canadian officials suggested an improving economy maybe cause to remove stimulus which caught markets off-guard. Having lost all footing, the pair was reduced to C$0.9865 low.
The monetary policy report followed on Wednesday and was generally digested as being a tad less hawkish than the policy statement. Price action was choppy and after dipping prior to its release, the market recovered back above C$0.9900 afterwards. The US dollar did stage a mild recovery as CPI came in as expected at 0.3%, but ultimately the pair finished lower near C$0.9930.
It is likely the Canadian dollar will remain neutral against the US dollar as the economic recovery in the US pauses and as long as BoC policy remains unchanged.
The precious metal began another arduous week in a choppy fashion as it fought its way back to $1,650 an ounce after concerns about Spain and falling oil prices weighed the metal down. Its correlation with equities held firm after it recovered from a sharp plunge to $1,634, as it followed a bounce higher in the Dow Jones with results from US corporates leading the markets.
This recovery was short-lived as the following day weaker-than-expected US earnings coupled with cautious undercurrents from Europe drew the metal back towards its week’s low.
Adding to the euro pessimism, French downgrade rumours on Thursday stifled sentiment and gold hit $1,631 low. Prices quickly raced higher on technical buying as the whippy trading conditions continued. The rally broke back above $1,650 level, but was toppled into the NY session with weak unemployment figures from the U.S. damaging sentiment further.
It is likely gold will weaken with waning physical demand and growing concerns over Spain, and most recently France, weighing on demand.
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