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Bank of Japan Remains Policy Unchanged

A guest post written by DAR Wong

Currency Market Observations – 25 May 2015

Fundamental Outlook

The U.S. inflation edges higher and trigger speculation of rate hike around coming year-end. Policymakers express of recovery bog down as bond yield rises. Japan maintains monetary unchanged amid high expectation of stimulus by market traders. U.K. inflation falls below zero benchmark for the first time in 55 years and marks slowdown in economic recession.

The U.S. building permit gained 1.14 million in April at annualized rates and higher than prior month 1.04 million growth. Housing starts also rose 1.14 million from March and above expectation. Another report reveals the existing home sales rose 5.04 million annualized rates in April and dropped from previous month 5.21 million annual pace.

Weekly jobless claims for the week ended 16 May went up to 274,000 against 264,000 in previous data. American consumer prices gained 0.1 percent in April after increasing 0.2 percent in March. Core inflation increased 0.3 percent, the largest rise since January 2013, after advancing 0.2 percent in March. Traders reckon the rate hike will be on course by year-end due to the steady rise in living cost.

Federal Reserve FOMC minutes state that policymakers are worrisome of higher inflation that may trigger imminent rate hike before the year closes. Higher inflation has pushed up the bond yields and this will hamper the risk of economic recovery.

Japan’s core machinery order rose 2.9 percent in April after revised at 1.4 percent decline. The preliminary estimate for GDP growth in second quarter is set at 0.6 percent and above forecast. Market still remains optimistic of weaker Yen to follow towards year-end in order to spike growth.

Bank of Japan has kept monetary policy unchanged by pledging to increase base money at an annual pace of JPY80 trillion (USD660 billion) through purchases of government bonds and risky assets. However, traders are unconvinced of the status-quo and predict continual stimulus will follow through as the nationwide inflation stood at 0.2 percent in March, far from the 2.0 percent target set by policymakers.

German ZEW economic sentiment that measures the business confidence dives to 41.9 in May due to fear of Greece crisis return. Another report on flash manufacturing index grew 51.4 in April after it was revised at 52.1 in March. German Ifo business climate report gained to 108.50 in April and in-line with forecast, after staying almost unchanged from previous month.

In Eurozone, the trade surplus was down to EUR19.7 billion in March and down from revised EUR22.6 billion in previous month. The final core consumer prices for April grew 0.6 percent at annual pace while in-line with expectation.

Among the 18 nations in Eurozone, purchasing manufacturing index rose to 52.3 in April and marginally higher than 52.0 in March. Current account gained EUR18.6 billion in March and shrank from prior month EUR27.3 billion.

U.K. consumer prices fell 0.1 percent in April on annual pace and went below zero for the first time since 1960. Core prices, excluding energies and tobacco, rose 0.8 percent annualized rates and below forecast. Another report on producer prices output gained 0.1 percent in April and stagnated from previous month. British economy reveals slowdown and new government formed by Cameron will face more challenges in his second term as Prime Minister.

Bank of England holds the benchmark rates at 0.5 percent and bond purchase program unchanged at GBP375 billion. Retail sales in U.K. rose 1.2 percent in April and grew 3 times higher than expected.

Technical Forecast

USD/JPY is challenging to break above 121.50 levels while sitting on 120.00 supports now. Technically, we will focus on Dollar strength that is leading the bullish sentiment against Yen though the Japan’s central bank has remained silent on stimulus injection. This week, we predict the market may climb higher to test 122.50 regions.

EUR/USD slides back in weakness due to Greek crisis and expected weakening from stimulus. The market should be temporarily supported at 1.0950 areas and begin to trade sideways. Resistance will emerge at 1.1250 levels in case of mild short-covering in market. Stay cautious to pick short entry upon pull up retracement.

GBP/USD fell on last Friday after negative consumer prices below zero for first time in 55 years. Technically, we reckon this is the digestion of recent bulls and market should begin trade lower at 1.5400 levels. This week, sideways consolidation is expected from 1.5400 – 1.5660 with strong resistances emerging at the topside.

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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