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Bank of England Holds Rates Unchanged

A guest post written by DAR Wong

Currency Market Observations – 13 October 2015

Fundamental Outlook

The U.S. trade deficits increases due to dropping export. Gold jumps to 6-week high after FOMC minutes revealed dovish remarks. Japan remains unchanged in monetary policy and disappoints investors. Bank of England also stays consistent amid recovery in manufacturing.

The U.S. Institute of Supply Management’s services index expanded at 56.9 in September and lower than 59.0 in previous month. Trade deficits expanded to USD48.3 billion after it was reported at USD41.8 billion in July. Export has been sagging from weak crude prices.

The weekly claims for jobless benefits by Americans dropped to 263,000 in the week ended 3 October, from revised 276,000 in previous week. FOMC minutes releases dovish sentiment on rate hike and pushes Gold to 6-week high.

Japan’s core machinery orders contracted 5.7 percent in August and worse from forecast. Current account surplus increased by JPY1.59 trillion and advanced from JPY1.32 trillion in July. Investors are still watching Abenomics on injecting more stimulus to lift inflation and devalue Yen.

In last week central bank meeting, policymakers held off on expanding stimulus even as slumping exports and falling oil prices are threatening its recovery track. The government remains consistent in projecting the ambitious 2 percent inflation target to be reached next year. Monetary expansion will grow at annual pace JPY80 trillion (USD666 billion) through aggressive asset purchases.<.

The retail Purchasing Manager Index in Eurozone stayed steady at 51.9 in September. In Germany, the trade balance dwindled in its surplus to EUR19.6 billion in August from EUR22.4 billion in prior month.

Markit in London says services index in U.K. declined for third straight month while the reading expanded at 53.3 in September. Another report on manufacturing production bounced to 0.5 percent gains unexpectedly and reversed from minus 0.7 percent in July.

However, the British core machinery orders were down 5.7 percent in August and worse than previous month 3.6 percent contraction. Bank of England policymakers remain the interest rate unchanged and asset purchase program stays at GBP375 billion.

Technical Forecast

USD/JPY has been trading sideways from 119.00 – 121.00 as activity shrinks. Market has been hovering at 120.00 regions while waiting for fundamental injection by Bank of Japan. Abenomics has proven failure at this moment and we foresee the market may fall in near future if Prime Minister Abe does not announce more stimulus by November.

EUR/USD climbed last week as we expected. Market closed at 1.1357 for the weekend as Dollar receded. This week, we reckon the trend will be prone to upside potential. Range is expected to move from 1.1200 – 1.1500 regions if the aforementioned support can hold the market.

GBP/USD traded in small bullish sentiment last week. The market will probably trade in small range this week while observing Dollar strength. Technically, we reckon the range will move from 1.5200 – 1.5400 regions. Support is pretty strong but breaking above 1.5400 will attempt 1.5500 resistances.

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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