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American Payroll Increases and Stokes Rate Hike Fear

A guest post written by DAR Wong

Currency Market Observations – 09 November 2015

Fundamental Outlook

The U.S. non-farm payroll increases above median forecast and triggers expectation of rate hike before year-end. Japanese Yen makes new low and Kuroda says no stimulus is needed though policymakers are ready to act. Bank of England (BOE) remains monetary policy unchanged while European Central Bank (ECB) reaffirms of possible new stimulus.

The U.S. Institute for Supply Management reports manufacturing index at 50.1 in October. Data above 50.0 reading indicates expansion. Another report on service index improved to 59.1, highest in past 3 months.

American factory orders was down at minus 0.1 percent in September, but better than minus 2.1 percent in August. Trade deficit for September narrowed down to USD40.8 billion from previous month USD48.0 billion.

The weekly claims for jobless benefits filed in U.S. Labor Department rose to 276,000 in the week ended 30 October, making 2 month high record. Before weekend, the non-farm payroll increased 271,000 in October and much higher than median forecast. Unemployment rate reduced to 5.0 percent compared to 5.1 percent in September.

Dollar edges up to fresh 3-month highs against the other major currencies, causing plunge in Euro and Pound. Growing expectation for a December rate hike by the Federal Reserve is returning to market as Federal Reserve Yellen hinted of possible rate hike earlier before year-end.

Japan’s household confidence expanded to 41.5 in October and higher than 40.6 in previous month. Yen weakened to new 3-month record at 123.00 on Friday after U.S. payroll spiked Dollar rise.

Bank of Japan (BOJ) Governor Haruhiko Kuroda warns that China’s slowdown and recession in other emerging economies will be biggest risk for Japan’s recovery outlook.Kuroda reiterates of easingthe monetary policy if necessary, although he re-confirms his view that Japan can hit the 2 percent inflation target without additional stimulus for now.

German industrial output was down for second consecutive month after it was reported at minus 1.1 percent in September. Debt issue in Eurozone has bene played down by media for past months though recovery is still sluggish. European Central Bank (ECB) President Draghi says new stimulus is possible by December if needed to spike growth.

Markit says manufacturing PMI in U.K. expanded at 55.5 in October and better than revised 51.8 in previous month. Another report on construction PMI in Britain remains vibrant by growing 58.8 in October compared to 59.9 in September.

U.K. services index climbed to 54.9 in October, making first rise after declined for past 3 months. Bank of England (BOE) keeps its benchmark interest rates unchanged at 0.5 percent and Monetary Policy Committee votes out of favor to raise rates in near future. Asset purchase program stays at GBP375 billion as before.

U.K. manufacturing output jumped 0.8 percent in September and twice the forecast. Trade deficits narrowed to GBP9.4 billion after it was reported at GBP10.8 billion in August.

Technical Forecast

USD/JPY spiked above 123.00 on Friday and closed at 123.14 for weekend. This week, we forecast the bulls will reach 124.00 as next resistance before liquidation emerges. Support lies at 121.50 levels that was violated on Friday. Plan your trade within this range as we are uncertain if Dollar will correct downwards again in near future.

EUR/USD traded lower on Friday and closed at 1.0738 levels. This week, we reckon the trend will drive lower at 1.0500 regions if Dollar continues to strengthen. Immediate resistance lies at 1.0900 that should not be broken if the trend is to remain bearish. Risk control must be observed in case of reversal against your position.

GBP/USD plunged on Friday and likely to move lower in coming week. Technically, we predict the trend will try 1.4850 bottoms before short-covering occurs. On hind side, immediate resistance lies at 1.5100 and 1.5250 regions. Bank of England favors low interest rates and this will help to weaken pound value for a while.

Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

DAR Wong is a registered fund manager in Singapore with 26 years of global trading experiences. You may reach him at dar@pwforex.com

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DISCLAIMER: This post is written for general information only. The author, publisher and/or any third party involved in the distribution of this work assume no legal responsibilities and shall have no liability whatsoever for any direct or consequential losses, costs or expenses arising from the use of the information contained herein.

 






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