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By Gaurav Kashyap, Alpari ME DMCC
Eurozone gears up for rate hike on Trichet's hawkish comments
EURUSD continued its stellar performance from the past few weeks, gaining 1.7% on the week and closing at 1.3987. Several key economic data over the week lent its support to a stronger Euro; retail sales in the Eurozone area improved to 0.4% MoM and 0.7% YoY while the overall unemployment rate dropped to 9.9% from a previous reading of 10.0%.
But it was Trichet's hawkish comments regarding future rate hikes which helped the Euro close near that key 1.40 level. As largely expected, the ECB kept its rates unchanged at 1.00% but in the subsequent press conference the ECB President said officials must exercise "strong vigilance" towards inflation. The hawkish tone of the President's comments were seen as the next best thing to raising rates without actually doing so and the EURUSD pair touched a near four month high following his press conference. Markets are gearing up for a rate hike and even Friday's improved US employment data couldn't bring down the Euro bulls.
US jobs reports positive, exceed expectations
Friday's US Jobs report painted a much better picture of the US labor market. February nonfarm payrolls came in at 192K (v 196K exp / 36K prev) while private hiring increased to 222K (v 200K exp / 50K prev) and hiring in the manufacturing sector improved to 33K (v 25K exp / 49K prev). The overall unemployment rate dropped to 8.9% (v 9.1% exp / 9.0% prev). In his speech from earlier in the week, Fed Chairman Ben Bernanke didn't rule out expanding the asset purchase plan, saying he didn't want to see the US relapse into a recession, but Friday's jobs numbers strongly point to an end to the ongoing $600 billion asset purchase plan this June.
Energy prices boost Canadian Dollar
In other news, the Loonie moved to a three year high against the US Dollar on the back of improved data, increasing energy prices and US Dollar weakness. The CAD reached its highest level since November 2007 hours before the Bank of Canada kept interest rates unchanged at 1.00%. Earlier, annualized quarterly GDP data showed an increase to 3.3% (v 2.9% exp / 1.8% prev).
The USDCHF posted a record all time low of 0.9202 last week before recovering to trade in the 0.9250-0.9300 range. The pair has been dragged lower as a result of a generally weakening US Dollar and the CHF's safe haven status amidst the escalating violence in the Middle East. The pair seems to be getting good support above 0.9200 levels as a result of fresh inflows into the pair. Earlier in the week, the Swiss National Bank reported a record loss of $21 billion for 2010 as the Swiss Franc's appreciation eroded the value of the Bank's foreign currency holdings. Following the announcement, the Swiss Central bank Vice Chairman Thomas Jordan said there was no need for any intervention at the moment and the hiking of their overnight rates "is not a question of today or tomorrow, but for the long term."
Markets watch for New Zealand, Bank of England rate announcements
Looking at the trading week ahead, we await the rate announcement from the Reserve Bank of New Zealand on Wednesday followed by the Bank of England's rate announcement on Thursday. Although no changes are expected from the BoE, all focus will be on the RBNZ's decision and its subsequent comments. The NZDUSD pair has dropped more than 3% since the nation's deadly earthquake and breaking through a key technical level of 0.7389 which is the 200 day moving average. In an effort to stimulate the economy, the RBNZ Governor Key has hinted at rate cuts and markets are pricing in a 0.25% cut which would see the NZD trade the week lower against its major counterparts. We also await the release of the ECB's monthly report on Thursday followed by the combo of economic releases from China on Friday, including the producer price index, industrial production, and retail sales.
Staff
