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Bernanke Confirms Stimulus Continuity

A guest post written by DAR Wong

Currency Market Observations – 23 September 2013

Fundamental Outlook

The U.S. Federal Reserve Chairman Ben S. Bernanke surprises the market by reinforcing his speech to maintain the monthly USD85 Billion in bond-purchase program. Europe stays in dormant mode as Germany wades into national Election. Britain moves in steadfast economic pace despite analysts anticipate correction of Pound may begin soon.

The U.S. consumer-price increased 0.1 percent in august. The data was below forecast and least in 3 months after July gained 0.2 percent. Claims for jobless benefits climbed 15,000 to 309,000 in the week ended 14 September, from a revised 294,000 in the prior period.

Another separate report on U.S. current-account deficit narrowed in the second quarter to the lowest in almost 4 years. The economists believe the export rise has helped to shrink the gap by 5.7 percent to USD98.9 billion in the 3-months ended June. Existing home sales rose 1.7 percent to 5.48 million annual rate in August due to lock-in of low interest rates before they might be raising soon.

Last Thursday morning, Federal Reserve Chairman Ben S, Bernanke announced in FOMC statement that policymakers will continue the monthly stimulus worth USD85 Billion without slowing down and warned an increase in interest rates will threaten the expansion.

Just when global stocks rose on Friday session, the FED Bank of St. Louis President James Bullard cited that policymakers may trim some bond buying in October. Dow Jones fell 185 points at the closing bell before weekend. Most economists surveyed have given opinions that Federal Reserve will still taper asset purchases in December.

Japan’s exports rose 14.7 percent in August from a year earlier while making the sixth straight advance. The trade gap was JPY960.3 Billion (USD9.8 Billion). Yen receded to 99.00 regions against Dollar and Nikkei 225 Index climbed to 8-week high upon improving economic performance.

In Europe, investors remain wary to German Election on the weekend of 22 September. Contesting through regional debt crisis and record low unemployment, German Chancellor Angela Merkel will face tough campaign as falling short of majority vote will force her Democratic-party into an unwilling coalition with the opposition Social Democrats.

U.K. inflation slowed in August as consumer price gained 2.7 percent from a year earlier, compared with 2.8 percent in July. Core inflation, which excludes volatile food and energy costs, remained at 2 percent on year-on-year basis.

Another report on British retail sales including fuel declined 0.9 percent in August against a positive expectation. The Bank of England has planned to maintain low interest rates for tiding through the recovery. Official economist say economic data has shown steadfast recovery and have raised growth forecast for Q3 to 0.7 percent from 0.5 percent.

U.K.’s net borrowing excluding temporary support for banks was GBP13.2 Billion in August compared with GBP14.4 Billion a year earlier. However, most market traders feel the pound might have been overbought and may be heading down for correction.

Technical Forecast

USD/JPY closed at 99.32 on Friday and will face strong challenge in coming week in upside trend. The market is ambushed with strong selling interest at 100.50 levels and breaking above here will meet another secondary resilient pressure at 101.50 levels. Once the bulls give up and turn down, we reckon the trend may be heading down to test our first support at 96.00 levels.

EUR/USD reached 1.3568 highs last week and closed near to this high for weekend. Fundamentally, we expect the trend to drawdown for correction after the German Election and 1.3570 – 1.3600 will stay as strong resistance. IN our opinion, the correction may test 1.3400 levels as our first target as the trend consolidates into this week. Abandon your short-view if the market penetrates above 1.3600 levels.

GBP/USD fell off the 1.6163 highs after the unexpected surge last week. Moving forward, the market will be prone to correct lower as we reckon it may test 1.5800 supports. Literally, we expect the range to trade from 1.5800 – 1.6160 this week though the sentiment is biased to weakness from pull-up retracement. Abandon your short-view if the prices pierce above 1.6160 resistances again!

Dar Wong

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

Wong is the founder and Principal Consultant of and holds a professional qualification in NASD series 3 and 5 approved by National Futures Association (USA).

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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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