Sterling ended the week as the strongest major currency as boosted by more hawkish than expected BoE minutes. The pound will face an important test from GDP next week. Euro followed in spite of continuous drama in Greece and ended up as the second strongest. But the technical outlook in respective pairs differ quite notably. Kiwi ended as the weakest one as comments from RBNZ official suggested that the central bank is considering rate cut. Swiss franc was the second weakest as SNB surprised the market by announcing to add more accounts to negative rates. Other currencies, including dollar, were mixed in the week. As we're approaching the last week of April, Canadian dollar is leading as the strongest one as helped by rebound in crude oil. Meanwhile, dollar is the weakest as markets adjusted Fed rate hike expectations.
In other markets, US equities were strong over the week with S&P 500 and NASDAQ closing at new record of 2117.69 and 5092.08 respectively. DJIA, nonetheless, was bounded in recent established range. Crude oil edged higher to 58.41 last week but lose momentum since then. Gold dipped notably after failing to sustain above 1200 handle and closed at 1179.9.
In Eurozone, Eurogroup president Jeroen Dijsselbloem said after the meeting in Latvia that warned that "time in running out" for Greece to secure the new bailout terms. And he urged Greece to provide a "comprehensive" list of reforms before any disbursement of financial aid can take place. Overall, Greece's creditors were generally dissatisfied with the progress in Greece and as European economics commissioner Pierre Moscovici noted, "we need to accelerate from today". The developments will remain a focus in Eurozone.
BoE minutes unveiled that policymakers voted unanimously in April to keep the Bank rate unchanged at 0.5% and the asset-purchase program at 375b pound. The minutes also suggested that all members agreed that it was appropriate to leave the monetary policy unchanged at the meeting, although 2 members regarded the decision as 'finely balanced'. Besides suggesting the rate path expected by the market was too flat, the BOE also noted that inflation expectations had shown signs of stabilization after recent weakening and judged that the low rate of inflation would not lead to delays in households spending. Overall, the tone of the minutes was viewed as rather hawkish. More in BOE Sounded More Hawkish in April.
The SNB announced that it would eliminate some groups of sight deposit account holders from the exemption from negative interest, i .e. more accounts would be subject to negative interest rates. As noted in the statement negative interest will now also apply to the sight deposit accounts held at the SNB by enterprises associated with the Confederation, including PUBLICA, the pension fund of the Confederation. The affected account holders will be accorded the minimum exemption threshold of CHF 10M, to which negative interest does not apply. The only sight deposit accounts to be exempt from negative interest will be those of the central Federal Administration and the compensation funds for old age and survivors' insurance, disability insurance and the fund for loss of earned income (AHV/AVS; IV/AI; EO/APG). We believed the move signals that SNB is not satisfied with existing monetary policy in driving capital away from Swiss franc. More in SNB Added More Accounts To Negative Rates .
The RBA minutes for the April meeting delivered a rather dovish tone as policymakers discussed about further rate cut although they are awaiting more data to confirm such a need. Regarding the decision to keep the cash rate at 2.25%, the central bank noted that, 'taking all these factors into account, the Board judged that it was appropriate to hold interest rates steady for the time being'. The RBA remained concerned about the housing market and high household leverage. Despite depreciation in the Australian dollar, the central bank expected further decline in the currency. More in Dovish RBA Signaled Further Rate Cut, Concerned About Housing Price And Leverage.
RBNZ assistance governor John McDermott said that the central bank is not considering a rate hike at present. On the other hand, RBNZ is looking at signs o weakness in demand and inflation that might warrant a rate cut. Markets perceived that RBNZ is shifting to a neutral bias with downside risks.
The dollar index dropped to close at 96.92 last week. Outlook is unchanged that the price actions from 100.39 are viewed as a consolidation pattern. Breach of 96.32 could be seen as the third leg of the pattern extends. But overall, outlook will stay bullish as long as 94.05/30 cluster support holds (38.2% retracement of 84.47 to 100.39 at 94.30). That is, the long term up trend is expected to resume later for new high above 100.39.
Comparing Euro and Sterling, the latter one is clearly more bullish. Firstly, EUR/GBP's choppy decline from 0.7384 extended to as low as 0.7116 last week before recovering. Near term outlook stays bearish as long as 0.7230 resistance holds and we'd favor a test on 0.7013 low ahead. Secondly, GBP/USD took out 1.4971 resistance decisively, which confirmed short term bottoming at 1.4565. The development favors a test on 1.5551 key resistance in near term. On the other hand, EUR/USD was staying in range of 1.0461/1052 and maintained neutral to bearish near term outlook look. Thirdly, GBP/JPY took out near term resistance of 179.28 which indicates near term reversal. And, further rise would likely be seen back to 184.99 resistance. On the other hand, EUR/JPY is held well below 131.28 resistance and thus maintained bearish outlook. Thus, we'd clearly favor Sterling over Euro, at least in near term. Euro, dollar and yen are three currencies that could be considered to sell against Sterling. Dollar's general pull back is in favor to extend. And that might send EUR/USD mildly higher towards 1.1052 resistance. Also, USD/JPY would head back to 118.51 support and a break there would trigger deeper fall. Thus, regarding trading strategies, we'd prefer to buy GBP/USD on a retreat to 1.5000 this week for a short term trade, with stop at 1.4900.