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Bank of Japan Resumes Weak Yen Policy

A guest post written by DAR Wong

Currency Market Observations – 22 December 2014

Fundamental Outlook

The US recovery on housing markets proves feeble while inflation remains weak due to slump in oil prices. FED governor Yellen promises to keep rates low and revive bullish sentiment in stock markets. Japan is ready for next phase of recovery after Shinzo Abe re-won his seat as Prime Minister. UK job market gets better at lowest unemployment rate since 2008.

The US industrial production grew 1.3 percent in November and higher than expected, after rising at revised 0.1 percent in October. The housing starts declined 1.6 percent, the first drop since August, to 1.03 million annualized rate from a revised 1.05 million pace in October. Building permits also dropped to 1.04 million annualized rates from 1.09 million in October.

American inflation measured by consumer prices contracted 0.3 percent in November due to oil slump. Core prices grew 0.1 percent while matching forecast. After FOMC meeting, FED Chair Janet Yellen committed to keep interest rates at low levels for at least next few meetings. Analysts expect this will last till April 2015.

The US jobless claims decreased by 6,000 to 289,000 in the week ended 13 December, the fewest since early November. FED Philadephia manufacturing index for December expanded at 24.5 and lower than forecast, after rising 40.8 in prior month.

In Japan newly re-elected Prime Minister Shinzo Abe has won two-third majority in Parliament’s Lower House, grabbing 326 out of 475 seats. Abe will have another term of 4 years to revive Japan’s economy by flooding the market with cash, encouraging corporations to create more jobs and increasing government spending.

Japans quarterly Tankan reports shows big manufacturer index slipped to 12 in December from 13 in September. Non-manufacturing index rises to 16 in the same period from prior quarter 13 index. Another separate report shows exports rose less than forecast in November, lifting 4.9 percent from a year earlier. Imports slid 1.7 percent, leaving a trade deficit of JPY892 billion (USD7.6 billion).

On last Friday meeting, Bank of Japan policymakers said they will continue to expand monetary base at an annual pace of JPY80 trillion to support recovery. Analysts expect Yen will resume weakness in January.

German ZEW Center for European Economic Research in Mannheim, said its index for measuring investors confidence climbed to 34.9 in December from 11.5 in November. The Ifo institutes business climate index advanced to 105.5 in December from 104.7 in November.

UK inflation slowed down to 1.7 percent in November from a year ago after rising 1.3 percent annualized rates in previous month. Claimant counts for jobless citizens fell for the 25th month in a row in November and declined by 26,900. Jobless rate stood at 6 percent and lowest since 2008.

UK retail sales including auto fuel increased 1.6 percent in November and rose 6.4 percent for a year ago. The government budget deficit narrowed from April and November at GBP75.8 billion, compared with GBP76.2 billion in the same period in 2013.

Technical Forecast

USD/JPY has regained footage above 119.00 levels after recent correction from below 116.00 benchmarks. This week, we reckon thin volume in market and the market will probably trade sideways from 118.00 – 120.00 regions. Activity is expected to return only in January.

EUR/USD revisited below 1.2300 levels on Friday after Dollar strengthened again. This week, we reckon the resistance will emerge at 1.2350 regions while trend might subject to become bearish again once it breaks below 1.2200 major levels. Target may drive down at 1.2100 levels.

GBP/USD is hovering at 1.5600 – 1.5650 regions with high possibility to test 1.5550 supports in coming week. Range is expected to trade from 1.5550 – 1.5750 regions but penetrating below 1.5550 supports might drive down at 1.5450 targets.

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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