Weekly market overview July 29 - Aug 03

The past trading week on the currency market was positive for the greenback. The worldwide reserve currency gained strength versus the major currencies, especially the Euro. The U.S. dollar index added 0.53% to the value, breaking the bearish technical pattern and closing the trading week above 96.00 resistance. The main reason for that from the fundamental point of view is the continuous pressure on trade war topic and concerns about the worldwide economic growth. The situation in Emergency markets remains unstable and this reason is pushing the capital flows to safe and low-yield assets. SO investors prefer to enlarge their savings instead of making investments in more high-risk assets.

The major American stock indices dipped in the middle of the past trading week, as the Federal Reserve had the meeting on Wednesday. The verdict was to keep the interest rates unchanged and the following statement had a temporary impact on traders’ mood, so the indices managed to pare the losses on Thursday and Friday, closing the week almost flat.

EUR/USD price action was determined more by the U.S. dollar strength rather than by the Euro weakness. The highest level at 1.1730 was posted on Tuesday and the pair slid more than 200 pips after that, falling 3 days in a row and closing the week below significant 1.1600 support. The outlook for EUR/USD is rather bearish with more room to go South. Some analysts see an intermediate support at 1.1400 level with high-volume buy orders placed there. The Fed showed clearly that they are going to keep hiking the interest rates this year and this increases the differentials and make the greenback more attractive for the borrowed capital flows from abroad. As long as the ECB will keep pushing on their dovish rhetoric, there will be no fundamental support for EUR/USD bulls in the nearest future.

The strong demand for the greenback pushed GBP/USD rates even lower this week, despite a surprise from Bank of England. The British regulator had the rate decision on Thursday, and the rate hike was widely expected. The unexpected income was the vote split: 9-0 for the rate hike versus 7-2 expected. But the bullish reaction was temporary and very limited in volume. After the 50-pips whipsaw, the pound reversed and kept falling throughout the rest of the trading week. Not much of the positiveness for the cable as it’s going to keep falling most likely. The upcoming important economic reports scheduled for the next Friday is the only chance for the GBP/USD bulls for a bounce at least, because nobody is talking about the reversal currently.

USD/JPY remained almost flat last week as bulls failed to break through the 112.00 resistance and the rates bounced back to 111.00/111.30 range. Apart of the Fed interest rates differentials and ongoing tightening cycle, there is a big concern regarding the strength of the worldwide economy due to the trade war fears. In this case, Japanese Yen act as the safe haven asset with traders and investors being cautious about the risk appetite. In addition, the export-oriented Japanese economy is not doing as well as it has been forecasted and such a potential slowdown could also decrease the capital market outflows. So we do not expect USD/JPY to get out of the recent consolidation range despite the strong demand for USD assets.

The Canadian dollar gained even more versus the major currencies since USD/CAD weakened 0.24% last week. The main reason for that is much more hawkish expectations for BoC to act in an even more aggressive manner than the Fed. Moreover, the recent growth of the Canadian economy, stable employment and growing Oil prices are among the factors supporting the Loonie. It would be very interesting to watch the further momentum in such cross-rates like EUR/CAD and GBP/CAD as these pairs were among the most fast-moving pairs on the Forex market last week. Such a sharp decline is explained by the fact that Euro and Pound are weakening versus the greenback, while Canadian dollar gains strength at the same time.

In the other markets, Turkish Lira was the headliner again. We have been reporting about the current situation in Turkey and it seems like it’s going to worsen even further. The United States anounced more sanctions against the Turkish government and the Central Bank failed to meet foreign investors’ expectations to hike the interest rates much faster. As the result, Lira plunged to 2-year lows. Chinese Yuan suffers from the trade war fears and the Chinese government is epected to step-in with supportive measures. There was also a sudden pull-back in Crude Oil WTI prices. The next trading week will show whether it is a good opportunity to join the recent uptrend. In the precision metals market, the demand for the greenback was also the main topic, as the prices for Gold and Silver had the same interation with the Fed meeting as we described before.

Turkish government
Source: H?rriyet Daily News

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