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Bernanke Favors Stimulus and Inspire Markets

A guest post written by DAR Wong

Currency Market Observations – 3 September 2012

Fundamental Outlook

The FED Chairman Ben Bernanke spoke in Jackson Hole annual summit that additional bonds purchase will be an option to stimulate markets. Japan downgrades outlook for Q3 due to contracting demands from Europe and China. Meanwhile, euro leaders continue to work hard for baling out indebted nations and German Chancellor gets assurance from Chinese premier on future financial supports.

The US existing home sales climbed in July from 8-month low record with sales increased 2.3 percent to 4.47 million annual rates amid low mortgage rates. The home prices in 20 US cities climbed in June from the report filed by S&P/Case-Shiller index that increased 0.5 percent from a year ago after falling 0.7 percent annually in May.

The US GDP climbed at a 1.7 percent annual rate in Q2 and was up from an initial estimate of 1.5 percent. Another separate report showed pending home resale climbed 2.4 percent in July, exceeding the median forecast of 1 percent gain. Weekly jobless claims ended 15 august were little changed at 374,000 while matching the upward revised figure from the prior week. Consumer spending increased 0.4 percent in July after being little changed in June.

On Friday, FED Chairman Ben Bernanke spoke in the annual summit held at Jackson Hole, Wyoming, that he does not rule out the injection of more stimulus through bonds purchase program. He also expressed concerns on the urgency of creating more jobs to ease unemployment below 8 percent.

Japan’s home investments rose 3.8 percent to JPY13.1 trillion in the fiscal year ended March 31, marking the first increase in 5 years. Buyers are taking advantage of near-zero mortgage rates and acquire ahead of tax increment in March 2014.

Japan’s retail sales for July fell 0.8 percent from a year earlier and worst in last 8 months after government wound down subsidies for car purchases. The government downgraded its economic assessment on Q3 outlook due to slowdown in Europe and China’s demands.

The economic confidence in Eurozone dropped to 86.1 in August versus the prior month 87.9 after it was dragged down by euro crisis. German business confidence reported by Ifo institute in Munich said its business climate index dropped to 102.3 in August from prior month 103.2.

Chinese Premier Wen Jiabao welcomed German Chancellor Merkel in Beijing and expressed concerns on Spain, Italy and Greece for their deepening sovereign debts. He pledged to consider further European bond purchases for helping to alleviate the critical situations. European Central Bank (ECB) President Mario Draghi is bent on working out a new supporting bond-buying program with euro leaders in relieving the indebt nations.

Technical Forecast

USD/JPY traded in narrow range while capped beneath 78.84 levels. This week, we reckon the market might turn weaker and the 78.00 supports may give way if the trend cannot emerge above 78.80 resistances. In our opinion, going below 78.00 will immediately test 77.50 levels as our next supports!

EUR/USD moved sideways for first 4 days below 1.2580 until it shot up on Friday following Bernanke’s remarks. The market made 7-week high and charged above 1.2600 levels on Friday in bullish sentiments. This week, we forecast the trend will probably climb higher to 1.2800 targets unless the trend turns down beneath 1.2480 supports.

GBP/USD recovered in upward trend on Friday after trading in consolidation for many days. This week, we have identified the support to sit at 1.5780 levels while the bulls might ascend to 1.6150 targets. The pound will likely entail euro in strong interest following the optimism of expecting US stimulus package in near future. Abandon your long-view if the market breaks beneath 1.5780.

Dar Wong

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

Wong is the founder and Principal Consultant of PWForex.com 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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