Forex market watching closely the FED

EUR:

The euro performed well against the US dollar last week by gaining +1.02%; EUR/USD closed the week at 1.3282. Key events are scheduled this week on the economic calendar which may have a high impact on the euro.

On Tuesday, the second quarter Spanish GDP report was released showing the country remained in a recession. However, data showed contraction was lower than expected and less than the previous quarter, indicating that the worst may be over.

From Germany, inflation and jobs data is expected this week while in the euro zone, inflation figures for July will be released on Wednesday. Furthermore, the European Central Bank will hold its Governing Council meeting for August on Thursday. Investors will be keen on whether policymakers will continue with their forward guidance which was introduced by Mario Draghi at last month's news conference. The central bank is expected to reiterate that it will keep its policy loose in the near-future.

USD:

The dollar fell to a one-month low against the yen on Monday and a five-week low against a basket of currencies on expectations the Federal Reserve intends to keep interest rates low for some time.

The dollar index, DXY lost 1.2% last week for its third straight weekly loss. Analysts are saying forex investors are trimming long dollar positions ahead of the Fed FOMC meeting amid expectations the Fed may not only sound dovish, but may also confirm their pledge to keep rates low for an extended period. Despite these growing expectations, tapering of its stimulus program still remains on the table for the Fed, and improving economic conditions could reignite dollar bulls.

GBP:

Cable pushed to a monthly high of 1.5433 and it looks like the sterling is poised to move higher this week as the Bank of England is slowly moving away from its easing cycle.

The BoE will also hold its Monetary Policy Committee meeting on Thursday this week with investors anxious on what the outcome will be especially as new Governor Carney completes his first full monthly cycle at the helm.

JPY:

Over the last three days we have witnessed the biggest surge by the Japanese yen in over six weeks. The USD/JPY plunged below 98.00 levels and the Nikkei 225 suffered its largest drop in almost two months. This was not surprising given the swing back to full over-crowded status that the short JPY trade appears to have taken on again.

This week the biggest market driver for the USD/JPY pair is expected to come from the FOMC meeting on Wednesday and the US non-farm payroll at the end of the week on Friday.

CAD:

The Canadian dollar rose for a third day approaching its highest level in a month as crude oil, the nation's largest export, remained above $100 per barrel for 18 days in a row.

The currency rose against the majority of its most-traded peers as the Standard & Poor's GSCI Index of 24 commodities snapped three days of losses.

NZD:

The New Zealand dollar declined after Prime Minister John Key said it's still "overvalued" and the government would welcome a drop in the currency.

The kiwi weakened versus most of its 16 major counterparts, paring a monthly gain that's the biggest among its peers, after Key's comments. The Australian dollar fell, snapping a two-week advance, as Asian stocks extended losses and damped demand for higher-yielding assets.

However, following Reserve Bank of New Zealand Governor Graeme Wheeler's comment on a possible tightening of New Zealand's monetary policy we can expect the kiwi to rise against its major counterparties in the coming days.

Gold:

Last week, Gold started the week surging to the upside, trading above the 1,300$/ounce threshold on Monday and not falling back below throughout the week on expectations that the Fed isn't about to taper its monetary policy anytime soon. This coincided with a policy reform in the Chinese central bank's lending rules last week that boosted demand for gold in the country.

By Wednesday gold prices dipped as US real estate data was much higher than expected. However, Thursday brought improvement, with gold rebounding on weak US labour data, easing worries that the Fed will start scaling back on QE as US jobless claims increased to 343,000 last week from the upwardly revised 336,000 in the previous week, highlighting stubbornly high unemployment in the world's largest economy.

Gold closed the week at $1,334 an ounce after starting at $1,295 an ounce. That's a gain of 3% over the week.

Looking ahead, the big question now is: will gold prices continue to rise this week?

Key news announcements likely to affect precious metals prices this week include; The FOMC Meeting, ECB Rates Decision, US Manufacturing PMI, US 2nd Quarter GDP Estimate and US Non-farm Payroll.

Vincent Pellizzari is a Trader at RTFX Ltd.