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Bank of Japan Extends Maturity in Bond Purchase

A guest post written by DAR Wong

Currency Market Observations – 21 December 2015

Fundamental Outlook

The U.S. raises FED fund rates after keeping it near to zero for 7 years. Bank of Japan maintains monetary policy but extends the maturity of Bond purchase. Germany fares better in economic sentiment while U.K. unemployment slides to its 7-year low record.

The U.S. consumer prices stayed at par in November after expanded 0.2 percent in October. Core prices, excluding fresh food and energy, rose 0.2 percent as forecast. Philadelphia manufacturing index slides to minus 5.9 and worst in 3 months, from gaining 1.9 in November.

American building permits rose 1.29 million in November and highest in 5 months records. Housing starts rose 1.17 million after it gained 1.06 million in October. Jobless claims for the week ended 12 December dropped to 271,000 from 5-month high.

In last week central bank meeting, Federal Reserve finally raised FED fund rate to 0.25 – 0.50 percent after 7 years of remaining near to zero levels. FED chair Yellen stresses that policymakers are normalizing rates to regulate recovery growth instead of curbing spending and resisting inflation.

Japan’s quarterly Tankan report shows large manufacturers have flat sentiment in business outlook at 12 index, unchanged from previous quarter ended September. Revised industrial production in October grew 1.4 percent and remained stagnated.

Bank of Japan announced on Friday on maintaining the monetary base at JPY80 trillion per year. However, chief Kuroda surprises market by extending the purchase of Government’s Bonds from current 7 – 10 year maturity to maximum 12 years maturity. Yen initially weakened but strengthened after digested the news.

German ZEW economic sentiment that measures institutional confidence rose 16.1 in December and better than expected. Another report on flash manufacturing rose to 53.0 in December and highest in 4 months. On the other hand, French manufacturing also rose to 51.6 and highest record since July 2011. Both are above 50.0 expansion levels.

German Ifo business climate surveys on 7000 companies and shows index dropped to 108.7 from 109.0 in November. Separately, Eurozone consumer prices rose 0.2 percent from a year ago and better than 0.1 percent gains in October. Trade balance grew EUR19.9 billion surplus in October.

U.K. consumer prices expanded 0.1 percent in November from minus 0.1 percent in October. Another data on factory gate prices dropped 0.2 percent and worse from revised minus 0.1 percent in prior month.

British claimant counts for jobless benefits increased by 3900 in November and higher than forecast. However, unemployment rate is down to 5.2 percent and best in 7-year history. Retail sales in November jumped 1.7 percent out of surprise after it slumped at revised 0.5 percent last month.

Technical Forecast

USD/JPY made a false break at 123.00 resistances but closed lower on Friday. This week, we maintain our view on shorting market. Range is expected from 120.00 – 122.50 regions and we project market volatility will be minimal due to holiday seasons.

EUR/USD closed at 1.0800 supports on Friday. Market tends to climb higher this week but constricts to limited range. Technically, we project the trend will move from 1.0800 – 1.1000 ranges. Abandon your long-view should the price fall below the aforementioned support.

GBP/USD has been bearish last week and closed at 1.4900 regions. This week, we foresee the market will be supported at 1.4850 areas and likely to trade in recovery at 1.5100 levels. Be cautious of little volatility as market might whiplash.

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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