MN: Pound jumps as BoE may pause asset purchase plan
(MENAFN - Advanced Currecy Markets [ACM]) With equity markets and commodity prices rising to new highs, the greenback was put under a lot of pressure last week, falling to new lows against the Euro (EUR), Swiss Franc (CHF), Australian Dollar (AUD), and Canadian Dollar (CAD).
The US Dollar (USD) continued to suffer as better than expected Q3 earnings results from Intel, JP Morgan, Goldman Sachs, and Google drove the Dow Jones Index to above 10,000 key resistance level; while crude oil prices also broke above the $75 per barrel price to close at $78.53. Gold marched to a record high above $1,070, before closing at $1,051 on Friday.
Retail Sales in the US fell by 1.5 percent in September, led by a contraction in auto sales as the "Cash for Clunkers" programme ended, although still the figure was still better than expected. Meanwhile, the Empire State Manufacturing Index soared from 18.9 to 34.6 in October, but the Philly Fed survey missed expectations dropping to 11.5. Federal Open Market Committee (FOMC) minutes for September's meeting suggested that the Fed is more optimistic about the economy but still cautious about the downside risk.
If it was any consolation, the dollar managed to recoup some of it's loses by the end of the week; but the question on a lot of investors' minds is, "will it manage to change its down trend direction looking ahead?" The next two weeks will give us a better picture on corporate earnings, which I believe would be the major market mover. Should the earnings be disappointing, the dollar could be headed towards a significant pick up; better than expected earnings, however, could lead the greenback to new lows against its major counterparts.
Crude oil: After breaking resistance level at $75, crude oil extended recent strength gains to top at $79.05 a barrel before closing at $78.53, being the highest level in a year. Support for crude came from, better than expected Q3 earnings, weak dollar, increased U.S. industrial production and a report from the Energy Department showing U.S. distillates supplies, including diesel and heating oil, fell from a 26-year high in the week ended Oct. 9.
Gold: Gold climbed to a new high last week above 1,070, before retreating later on profit taking to close at 1,051.5. A Bloomberg survey suggests decline in gold price in the coming week as record price erodes jewelry demand.
However, in longer-term, gold should continue to rise higher as supported by further decline in USD and low interest rate environment in major developed economies.
EURO: the Euro (EUR) rose to a 14-month high against the dollar, almost testing the 1.5 key resistance level. Traders ignored the German ZEW economic sentiment which dropped to 56 in October, as risk appetite continued to push the pair higher. Euro Zone exports fell by 5.8 percent month-on-month in August, suggesting that the EU is struggling in the face of the Euro's strength. Would the EUR/USD pair break above the 1.5 level next week? On Monday and Tuesday, Euro Zone finance ministers will gather for their regular monthly meeting.
The Euro's strength had been an important topic last week with so many comments from EU finance ministers, and the topic should be another hot topic at next week's meeting. Traders will also keep an eye on the German IFO business confidence and industrial new orders report, but as mentioned, focus mainly would be on the results of the finance ministers' meeting. A break above 1.5 mark would suggest a new target for the Euro at 1.55.
GBP/USD: The Sterling (GBP) had the best performance last week, rising 3.2 percent versus the dollar, boosted by speculation that the Bank of England (BoE) will momentarily halt its asset purchase programme, which has almost used up to �162 billion of the �175 billion fund. Next week could be volatile for the Sterling, with possible movement dictated by two major releases - on Wednesday, traders will be awaiting the minutes of the central bank's latest rate decision, while Q3 GDP will be out on Friday. Both figures will determine whether or not the BoE will continue its asset purchase programme, and accordingly the sterling's upward or downward movement will be determined.
Indian Rupee: (Based on Dubai Gold & Commodities Exchange Figures) The Rupee lost some of its momentum on Friday as the Dollar gained against majority of currencies over earnings data. The Rupee made a high of 216.21 (Spot: 46.25) and later moved down to close at a low of 215.55 (Spot: 46.40) as the Indian markets were closed on account of the Diwali festival. The Sensex closed at 17326 up 3.19 points on Saturday's one hour trading session as investors were cautious on the global economy and the strong dollar indicating signs of profit booking to be seen in the coming weeks. The markets have been moving up steadily backed by the rising US and Asian stock markets. The Rupee could find further weakness and holding support at 214.60.
Important data today would be mainly from the US as Net Treasury income flows could show that more foreign buying of US treasuries has been taking place while industrial production could show a slowdown. The most important news would be the confidence data which could show a slight drop.
