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Bank of Japan Disappoints Market with New Stimulus

A guest post written by DAR Wong

Currency Market Observations – 01 August 2016

Fundamental Outlook

The U.S. Federal Reserve (FED) holds interest rates unchanged that increases probability on next tightening before September. Bank of Japan (BOJ) also remains unchanged in policy in Yen rates though stresses on buying more equity to support recovery. Dollar begins new weakening trend after the policy announced by the 2 central banks.

The U.S. Conference Board of consumer confidence reports the index rattles high at 97.3 in July compared to revised 97.4 in June. New home sales grew 592,000 in June and better than forecast. Weekly jobless claims rose to 266,000 in the week ended 23 July and highest in past 4 weeks.

The U.S. orders for core durable goods, excluding transport equipment, slid 0.5 percent in June after continual slide from minus 0.4 percent in May. Pending home sales rose 0.2 percent compared to 3.7 percent decline in May. Crude inventories gained 1.7 million barrels and put lid on oil prices.

In the FOMC meeting held last week, Federal Reserve chair Janet Yellen and policymakers held interest rate unchanged but hinted the economy may be ready for a rate hike in September if the recovery sustains in cushion. The advance GDP rose 1.2 percent in Q2 after June ended, below forecast and grew little from revised 1.1 percent in Q1.

Japan’s household spending for June dropped 2.2 percent from a year ago. Core consumer prices in Tokyo remains sluggish at minus 0.4 percent in July on annual basis. Another report on retail sales slid 1.4 percent in June from a year ago and continues fall from prior month.

On last Friday, The BOJ left interest rates steady despite market expects more stimulus to revive the slowdown. However, the central bank says it will ramp up ETF purchases to sustain the monetary supply grows at an annual pace of JPY6 trillion (USD56.7 billion), from 3.3 trillion yen previously.

German Ifo business climate that measures the sentiment manufacturers and wholesalers grew to 108.3 in July and fell slightly from June. German prelim report for consumer prices gained 0.3 percent in July and better than 0.1 percent growth in June.

U.K. reports prelim GDP for second quarter rose 0.6 percent and above median forecast. Mortgage approvals remains steady at 65,000 in June report.

Technical Forecast

USD/JPY fell after the BOJ conference on holding interest rates unchanged. Market plunged about 350 pips on last Friday and closed at 101.90 bottoms. This week, we reckon the market will make slight correction at 103.50 regions before another slide follows through. Major direction has begun on new southern trend on rising Yen against Dollar.

EUR/USD reversed higher last week from receding Dollar. Market will be supported at 1.1050 areas in coming week and probably prone to rise further. Technically, we are expecting range consolidation from 1.1050 – 1.1250 regions but extending beyond the resistance will advance to 1.1400 levels.

GBP/USD is narrowing into an end before blasting a trend. This week, we forecast support will emerge at 1.3100 areas and carries huge potential to climb higher. Trend is prone to rise till 1.3500 with a hind side potential to reach 1.3650 targets if Dollar weakens rapidly.

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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