Market News & Insights
4 August 2014

Weekly Round-up: USD maintains Dominance

EUR/USD 1.3425
GBP/USD 1.6825
GBP/EUR 1.2532 (0.7979)
EUR/CHF 1.2168
GBP/CHF 1.5244
GBP/AUD 1.8059

Last week markets were very much focused on USD data, below we have a brief run through the big events last week which left the USD holding on to gains as the greenback traded close to 8 week highs, while global equity markets faced some of their heaviest selling since 2012. Data today remains light, with much of Europe on Holiday. Construction PMI data from the UK headlines the morning calendar, while data from the US session is non existent.


The only release of interest last Monday was Pending Home Sales. The numbers have been strong of late, however the rebound enjoyed through the last couple of months has been muted as the index of pending home sales unexpectedly declined 1.1 percent from the previous month after rising 6 percent in May. There was little volatility in the markets as the US dollar traded marginally firmer against a basket of currencies. EURUSD traded within a 17 pip range 1.3428 while GBPUSD trade within a 35 pip range opening at 1.6977. GBPEUR did not do much better opening at 1.2637 closing marginally higher 1.2644.


There was one US news release worthy of a mention on Tuesday in the form of Consumer Price Index which saw the cost of living in the U.S increase in June bolstering the argument that the US is moving closer to conditions to normalise policy. Another development worth mentioning was the EU announcement that it would curb Russia’s access to bank financing and advanced technology in its widest-ranging sanctions yet with EU governments agreeing to bar state-owned banks from selling shares or bonds in Europe and restricted the export of equipment to modernize the oil industry.


If Monday and Tuesday were the calm before the storm then traders were waiting for the day’s trio of US releases to help determine the faith of the greenback. First up was ADP Employment Change which saw companies add 218k more workers in July, shortly followed by the highly anticipated U.S Q2 GDP figures which confirmed that the U.S economy rebounded strongly in the second quarter this year, advancing at a 4.0% seasonally adjusted annual rate raising hopes for sustained growth going forward. Last but not least was the FOMC Statement which again provided a brighter outlook for the U.S economy. The FOMC announced that they will maintain tapering of US$10bln per month.

The Federal reserve also stated that the economy is getting better and that risks of deflation are diminishing, however it fell short of stating any intent in raise rates sooner than next summer. It was also noted that there was some dissent amongst FOMC members, although we will have to wait until the minutes are released for more details on this. GBPUSD traded in a 1.6939 -1.6955 range through Wednesday while EURUSD fell to a 9 month low as the pair held below the 1.3400 level. The drop was accelerated by the bumper GDP figure in the US but EUR weakness was also an issue, as German inflation figures confirmed a decline in inflation growth.


For much of the year Clear Treasury and the majority of the market have been calling for a stronger US dollar and it appears the greenback is ready to shine. Thursday’s jobless claims confirmed fewer Americans filed applications for unemployment insurance benefits over the past month. GBP/USD traded slightly softer than the previous day trading 1.6905-1.6927. A 1.4% fall since July 15th saw spot briefly drop below support. Meanwhile in Europe the Euro-area inflation unexpectedly slowed in July to the weakest level in almost five years, underscoring the ECB’s concerns that the economy is too feeble to drive price growth. Inflation was 0.4 percent compared to 0.5 percent in June. EUR/USD traded lower after the CPI reading and continued to trade in an overnight range of 1.3392-1.3340.


UK data was very light last week which saw the pound on the receiving end of selling all week. GBP/USD has enjoyed a good run reaching fresh 6 year highs, however more recently we have seen the greenback gain some ground due to rising interest rate expectations based on the run of good results from the U.S. UK PMI Data released on Friday showed U.K manufacturing grew at the slowest pace in a year through July. A factory index slipped to 55.4 from a revised 57.2 in June. While the U.K report suggests some loss of momentum, the gauge remains higher than the survey average of 51.5 and has showed expansion for 17 months. The pound declined 0.3 percent on the back of these results to $1.6833.

Meanwhile in the U.S employers in the U.S added more than 200,000 jobs for the sixth straight month in July, showing the world’s largest economy is making strides toward sustaining faster growth entering the sixth year of expansion. The 209,000 advance followed a revised higher 298,000 gain in June, figures from the Labour department showed. The Jobless rate however climbed to 6.2 percent from 6.1 percent. EURUSD has traded in a bigger range of 56 pips before settling at 1.3440. GBP/EUR continued to drop though out the day trading at 1.2530.