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Bank of England Holds Policy Unchanged

A guest post written by DAR Wong

Currency Market Observations – 18 July 2016

Fundamental Outlook

The U.S. wholesale inventories contract on better demand while retail sales rise on monthly basis. China gains higher than forecast in Gross Domestic Product. U.K. announces Theresa May to be the new Prime Minister for replacing David Cameron.

The U.S. wholesale inventories rose 0.1 percent in May as sign of demand lifted, better than revised 0.7 percent gains in April. American producer prices rose 0.5 percent in June, highest since last May.

Another separate data on weekly jobless claims unchanged at 254,000 in the week ended 9 July, but lower than median forecast. The U.S. consumer prices gained 0.2 percent in June. Core prices, excluding fresh food and energies, also rose 0.2 percent. Both met forecast standard.

American retail sales rose 0.6 percent and higher than 0.2 percent forecast, while core retail prices excluding the automobiles, advanced 0.7 percent. Last week, Dow Jones market advanced to new historical new highs above 18,500 levels.

China GDP for Q2 grew 6.7 percent on year basis, above forecast 6.6 percent. Industrial production including mines and utilities gained 6.2 percent from a year ago and highest in past 3-month record. Trade surplus rose CNY311 billion in June and fell from CNY325 billion in previous month.

Japan’s producer prices dropped 4.3 percent in June from a year ago, in line with forecast but reveals slow inflation. Core machinery orders slid 1.4 percent in May after it plunged 11 percent in previous month.

Liberal Democratic Party led by Prime Minister Shinzo Abe has won the Upper House Election. Abe orders for more stimulus to loosen economic strains but has not revealed actual package. Yen receded after his comments.

Markit in London reports the construction index gained to 46.0 at 3-year low record, below forecast and after rose to 51.2 in May. Bank of England holds policy unchanged but hints stimulus may be added in August. Market is surprised after the expectation of some monetary stimulus comes to no avail.

British government has announced that Theresa May from Conservative Party, to be sworn in as new Prime Minister for replacing Cameron. Pound recovers from 1.2900 bottoms for 300 pips jump.

Technical Forecast

USD/JPY recovered about 600 pips last week from 100.00 bottoms and settled around 105.00 regions for weekend. This week, we predict the trend will climb higher to 108.00 regions before fizzling out. Support should rest at 104.00 in case of drawdown. Trade with risk control as we expect price swings.

EUR/USD traded sideways last week with bearish sentiment on Friday. This week, we expect the trend to continue bearish and might reach 1.0800 bottoms. Resistance will emerge at 1.1100 regions and ambush with strong selling interest.

GBP/USD topped off 1.3480 last week and closed at 1.3190 for weekend. This week, we reckon support will emerge at 1.3100 levels and ranged below 1.3500 resistances. Fundamentally, we should see Pound trading sideways in coming weeks but could advance higher above 1.3600 levels before turning down.

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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