Another week of high volatility expected on the Forex market

EUR:

The euro ended the week mostly flat. Since the beginning of the month the currency has fluctuated within a 200-pip range between 1.32 and 1.34. Last week, better than expected eurozone trade and current account numbers failed to lift the euro, and the eurozone Consumer Price index (CPI) dropped by 0.5%. The outlook for the euro is improving ahead of this week's PMI numbers for France, Germany and the eurozone, which will give a new perspective on the state of the economy. Manufacturing and service sector activity is expected to grow at a stronger pace in the month of August. Last but not least, on Friday, Germany will release the GDP figures.

USD:

Last week, the US market was driven by worse than expected macroeconomic data, which thus decreased probabilities of an early QE taper from the Fed. We have seen the Dow posting its biggest weekly loss; fear and risk aversion drove traders' risk sentiment. VIX, the so-called fear index, rose to fresh highs of 14.88, while the dollar index literally plunged on Thursday following the release of the US Philadelphia Fed Manufacturing Index, which posted its largest drop in nine months with a 9.3 reading for August, versus 19.8 print for the last period measured. This sent the dollar index from highs of 81.94 to lows of 81.09.

From the economic docket, traders will not only be watching closely the Jackson Hole economic symposium, which will be held from 22 till 24 August, but also for the FOMC minutes to be released on Wednesday. Traders will be looking for clues regarding the QE tapering or information from the Jackson Hole symposium, which could add some direction to the market.

GBP:

GBP rallied for the second week in a row, the pair gained an impressive 339 pips, trading from 1.5289 (opening rate two weeks ago) to 1.5628 (last week's closing rate) and is now heading to 1.57 levels. The next resistance should be found at 1.5751, which corresponds to the 17 June high level.

 The British pound has been boosted by better than expected retail sales released on Thursday, which rose by 1.1% in July. On the economic docket this week, we will be watching closely the GDP figures that will be released on Friday morning; a good reading should push the pound higher.

JPY:

USD/JPY rose slightly last week but made a good start this week, thanks to a widening trade deficit figure for the Japanese economy. In case the USD/JPY should continue its rally, the pair could pare the losses incurred two weeks ago and head back to 99 level.

AUD and NZD:

The kiwi and Aussie dollar were under significant pressure overnight, while the Japanese yen and US Treasuries yields benefitted from investor's flight to safety, as riskier currencies fell and Asian markets slid. The New Zealand dollar fell after the Reserve Bank of New Zealand announced home-lending restrictions and added that the local currency was overvalued.

 The Aussie followed suit, weighed by risk aversion as Forex investors fled from riskier assets, and after minutes from the Reserve Bank of Australia were seen as dovish. The RBA said the currency's direction will be important in determining future policy and pointed at the possibility of further rate cuts in the future.

Gold and silver:

Gold and silver prices advanced again last week to hit new highs on Friday. The gold price opened the week at $1,316 an ounce before closing the week at $1,373. That's an increase of 4.3% in a week.
However, silver was the standout metal this week: the price began the week at $20.67 an ounce on Monday before closing the week almost at weekly high of $23.18 an ounce. That's an impressive gain of 12.1% for the week.

The catalyst driving commodity prices this week was primarily influenced by worse than expected economic data from the world's largest economy and a decline in the US dollar that lured investors into the safe haven of precious metals. 

On Thursday, the US Philadelphia Fed Manufacturing Index posted a worse than expected reading of 9.3 points in August, from 19.8 tracked in the previous month. Analysts had forecast a reading of 15.0 points. This report triggered an immediate sell-off in the US dollar, leading to a breakout in gold and silver prices. Gold jumped 2.5% within 25 minutes of the announcement, to hit a fresh seven-week high of $1,370 an ounce.
Gold's appeal was boosted once again on Friday after U.S consumer confidence took a blow, following The University of Michigan Consumer Sentiment Index dropping unexpectedly to 80.0, down from the previously recorded 85.1. This catapulted the gold price to an eight-week high of $1,379 an ounce before finally settling at $1,373 an ounce.
August is the beginning of an end-of-year rally for precious metals. Prices may reach $1,450 an ounce by the end of the year, according to a median of estimates in a survey of 11 traders, jewellers and analysts who attended the India Gold Convention in Jaipur on 16 and 17 August.

Vincent Pellizzari
 is a trader at RTFX Ltd.