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Bank of England Refrains from Increasing Interest

A guest post written by DAR Wong

Currency Market Observations – 27 October 2014

Fundamental Outlook

The US consumer prices still show slow recovery while manufacturing PMI slackens. China picks up in economic momentum while Europe begins asset purchase program. Bank of England (BOE) policymakers opt for no interest rate hike as economic growth is still below benchmark.

The US existing home sales advanced to highest level in a year, climbing up 2.4 percent in September to a 5.17 million annual rate, compared to 5.05 million growths in previous month. However, new home sales slowed after transactions stagnated at 467,000 sales in annual rate compared to previous month revised 466,000 sales.

American consumer-price index climbed 0.1 percent after decreasing 0.2 percent in August. Core prices slid 0.1 percent after excluded food and energies. Inflation check is an important indicator to gauge the recovery rate of ailing economy. The worries of increasing interest rates after stimulus withdrawal will be unfounded if consumer prices continue to stagnate.

The US jobless claims rose to 283,000 in the week ended 8 October and above revised 266,000 in prior week. Flash manufacturing PMI was down to 56.2 and below expectation.

China grew 7.3 percent in Q3 of the year ended September and above median forecast. Another separate report shows industrial production grew 8.0 percent in September from a year ago and versus 6.0 percent in prior month.

German producer prices stagnated at par in September after contracting at minus 0.1 percent in August. German flash manufacturing PMI in October rises to 51.8 after revised figure showed 49.9 in previous month. In the 18 nations, the flash manufacturing PMI records 50.7 and above median forecast.

Last week, European Central Bank (ECB) bought Spanish covered bonds as asset purchases program after Treasury notes were also bought from Italy, France, Portugal to Germany.

Bank of England (BOE) releases minutes of the Monetary Policy Committee’s October meeting that reveals officials voted 7-2 to keep the benchmark rate at a record low 0.5 percent.

The UK retail sale was down 0.3 percent after rose 0.4 percent in August. Another separate data on CBI industrial expectations contracted at minus 6 and worse than prior month at minus 4. The preliminary GDP growth in UK for third quarter ended September estimates at 0.7 percent and in-line with median forecast.

Technical Forecast

USD/JPY was trading in mild recovery last week as market short-covered. This week, we foresee the trend will be resisted at 108.50 regions while down move is more likely to appear. Support rests at 107.00 levels and it may be better to hunt for shorting opportunity from pull-up retracement.

EUR/USD seems to have support at 1.2600 areas and prone to recover at 1.2800 levels in coming week. Technically, the market is in mixed sentiment and subject to move both directions based on market news. Beware of breaking below 1.2600 levels as this might lead to re-test at 1.2500 bottoms.

GBP/USD has been trading in sideways amid position closure for few days. The market may be well supported at 1.6000 benchmarks and ascend to 1.6300 in coming week. However, breaking below 1.6000 immediate supports will post danger in re-testing 1.5900 bottoms. Pay attention to the UK fundamental news and actions by ECB policymakers.

Dar Wong

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

DAR Wong is an approved fund manager in Singapore with 25 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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