Mixed sentiment behind the Greenback

Mid last week US GDP advance Y/Y was close to flat, barely rising from the previous 2.6% reading. Comments from the Fed that same day in the evening however provided some reassurance after this quasi flat reading. The FOMC communication indicated that there was a pickup in growth recently and that household spending appears to be rising more quickly. The net effect was to see a weaker USD as the unamusing GDP performance seemed to get investors to expect that the Fed would not rush into reversing its low rate policy.

As expected the FOMC reduced its monthly asset purchases to $45 billion, as it pared the pace of its MBS and Treasury Purchases by another $10 billion, interest rate remained unchanged. The Fed also reiterated that it will likely keep benchmark rates close to zero for a “considerable time”, even after asset purchases are unwound.

The highlight for the USD was the labour market health check at the end of last week. The US created 288k jobs during the month of April up from a previous 203k. The strong data did not do much to help the buck, because even if it lent some immediate support, it was short lived and was completely erased within a couple of hours.

To hit or not to hit... the 1.40 levels

Pressure keeps mounting for the EZ as the single currency stubbornly clings onto its gains. At the time of writing, according to the Bloomberg Correlation-Weighted Currency Index the euro is up +0.50% in this last month and looks back at +2.35% and +6.29% gains respectively in these last 6 and 12 months.

EUR/USD is currently at 6-week highs. Earlier this week we’ve seen weekly highs of 1.3940 as investors seemingly want to test Draghi’s patience, as we moved closer to the ECB communication this Thursday.

Earlier this year ECB President Draghi showed concern over the euro’s strength, as he linked it to weaker inflation, but it looks like investors would like to test his resolve to talk down the single currency.

EUR/USD: As long as 1.3845/1.3823 continues to offer support the upside remains intact for this week. However major headwinds ahead as we wait for the ECB communication tomorrow.

Support: 1.3801/1.3731 Resistance: 1.3959/1.40

No Change from the RBA, but more optimistic on Labour market

RBA kept rates on hold on Tuesday making no changes to its current policy rate of 2.5%. The Australian Central Bank sounded more positive on the labour market and maintained its current policy tone, this helped the Aussie attract some bids and was overall in positive territory early into Tuesday’s trading.

The GBP success story continues, early last week the advance reading for the first quarter GDP growth was out at 3.1% rising on the previous 2.7%. Last Tuesday the reading for the UK Services PMI, essentially a health check of the UK services sector, showed that this sector in April grew at its fastest pace in these last four months – driven by employment and new business.

The GBP not looking back

The BoE is due for its interest rate decision on Thursday this week and while most likely no changes will come forth as the central bank keeps the interest rate at a record low, analysts are expecting an increase in rates as early as this year.

The British Pound’s gains continue with the BCWI showing gains of +1.37% and +4.93% respectively over the last 3 and 6 month period. The GBP/USD has reached weekly highs of 1.6992, levels we had last seen in August 2009, as the currency pair continues in its longer term bullish trend.

The GBP was stronger against the euro as well; the EUR/GBP is currently trading at the level of 0.8208 after hitting fresh lows of 0.8196 last week.

GBP/USD: After shying just a few pips short of 1.70 levels we're expecting a pull back to 1.6858 - 1.6827 zone.

Support:1.6796/1.6716 Resistance: 1.70

Gold: a strong start in May

Gold looks more determined at the start of the current month, with price action registering +1.27% gains in these first few days. Currently trading around the price of $1308 gold got a good leg up following the release of the US Payrolls data last Friday. The better than expected release initially hurt gold, however the trend was soon reversed as price hit close to $1264 support.

Being a non-interest bearing investment gold initially was sold as the better than expected US data hit the wires, because the prospect of an eventual rate rise from the Fed becomes more palpable – however bids for the yellow metal flowed back as gold hit fresh lows. The unrest in Ukraine and a disappointing Q1 GDP reading from the US soon calibrated the initial euphoria exactly after the US payrolls data last Friday.

Gold: Major support at $1271.90 helped the rise to $1315.65 this could possibly extend to the limit of $1332.14.

Support:$1272.79/$1247.23 Resistance: $1332.14

This article has been prepared by Rudolf Muscat, Senior Trader at RTFX Ltd.