UK on the verge of a triple dip recession

USD

Last week the USD dropped after GDP data was surprisingly low, scoring a worrying -0.1%, its worst performance since the second quarter 2009, as government spending declined by 6.6%.

However a more in-depth look at the data reveals notice two things. The first is that despite a disappointing headline figure details turned out to be much better. Indeed, the result was depressed by temporary factors and it is the plunge in government spending that caught everybody by surprise.

The second is that US domestic demand fared well when looking at its contribution to real GDP growth; it recorded a satisfactory 2.9 percentage point increase, an increase by 1.9pp in comparison to the 3rd quarter 2012 figure

Last but not least, the Non-farm Payroll data released on Friday suggested that employment is gathering momentum.

EUR

We have seen interesting moves in the most traded forex pair. The first obstacle, a psychological level set at 1.35, was easily surpassed on Wednesday thanks to a declining dollar.

On Thursday the pair was pushed higher, boosted by better than expected Economic Sentiment data scoring an 89.2 rising 1.4 points compared to the last measured period. Some analysts will see this as a sign of renewed optimism from the euro zone while others will look deeper and see the striking truth behind the curtains, which is, that the euro zone economy is fragmented. In fact, Germany is once again leading gains while other countries, like Italy, are stabilizing, or even pessimistic, such as France.

Despite the economic reality, the EUR/USD finished the week hitting above 1.37 after the release of the Non-Farm Payroll data, which did not meet analysts' expectations.

Looking at the evolution of EUR/USD and the underlying economic reality, we can't say that it is due to a recovery of the economy but a slowdown of the current recession to be precise. The move of last week is then mostly due to optimism.

JPY

JPY continued to plunge against all major currencies last week. The USD/JPY rose throughout the whole week to surpass the 92.00 levels, still due to the prospect of QE planned for next year and the objective to double the inflation rate that is currently at 1%.

Such a move can be quite dangerous for the Japanese economy. On one hand, exports may be boosted but on the other, major industries will be impacted by rising import costs, and they already face this problem with rising energy costs.

Anyway, despite warnings coming from some industries, it seems that the USD/JPY has still some room to head north and the pair is forecasted to rise to 110.00 levels by the end of the year by the more adventurous forex analysts.

GBP

Cable lost ground during first half of last week breaching the 1.57 levels on the 28th of January. After that move, the pair rebounded on profit taking and risk adverse traders unwound their positions whilst the pair was trading at key low levels.

All that recovery was lost in one day by the end of the week. Uncertainty on GBP put pressure and did not allow the Cable a sustainable recovery. The economic outlook is pessimistic for the UK, and is on the verge of a triple-dip recession that does not help the currency.

CAD

The Canadian dollar was in really good shape last week especially against the US dollar. Looking at the evolution of the USD/CAD move last week we could notice a continuous downtrend with some technical spikes.

The USD/CAD however ended the week at its lowest, helped by better than expected GDP (m/m) established at 0.3% in November.  

Gold

Precious metals markets are really tough to trade on at the moment because of their highly uncertain behaviour. Last week was a perfect illustration of how complex and difficult it is to trade such markets. Looking at how nervously Gold has been traded we can infer that it has struggled the whole week to find a direction. In addition, signals coming from the US were mixed and did not help investors find a clear direction.

As we could see at the end of the week, Gold prices moved like a roller coaster. We could observe violent spikes of approximately 20$ for three days in a row starting on Wednesday. By the end of the week Gold was still mixed with no clear direction.