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Bernanke Reassures Low Interest Rate

A guest post written by DAR Wong

Currency Market Observations – 13 May 2013

Fundamental Outlook

The U.S. stock markets stay in strong sentiment amid job growth recovery in economy. Bernanke reassures of low interest rates and monthly stimulus so long as unemployment floats above 6.5 percent. The European Central Bank (ECB) President Draghi stresses again that policymakers are prepared to cut rate further should economy deteriorate. However, analysts remain dubious and foresee rates will remain steady till at least 2015.

The U.S. jobless benefits claimed by unemployed citizens decreased by 4,000 to 323,000 in the week ended 4 May. The rise in recent payrolls and contractions in claims prove quantitative easing policy taking effects. On Friday, FED Chairman Bernanke said that policymakers will remain USD85 Billion monthly stimulus and keep rates at record low so long as unemployment stays above 6.5 percent.

The U.S. budget surplus increased to USD112.9 billion in April, the biggest since April 2008, from USD59.1 billion a year earlier. Dow Jones markets have been trending in bullish interest throughout the whole week amid economic recovery.

China records a trade balance of USD18.16 Billion in April that is bigger than median forecast at USD15.5 Billion. The inflation rose 2.4 percent on year-on-year basis from last April. Last week, both reports helped to lift Asia stock markets in tandem with rising American equities.

Last week, the Japanese Yen fell beyond 101.00 per dollar for the first time in past 4 years. The weakening Yen boosts Nikkei 225 Average Index to make new highs above 14,600 levels while challenging the last top in June 2008. As regional equities and Dollar index jumps further, commodities slide in flight of funds to quality prices.

In early May, ECB cut its benchmark rate to a record low of 0.5 percent and extended unlimited liquidity supply to euro-region banks until mid-2014. President Mario Draghi reiterates that policymakers to reduce rates further and even see negative deposit rates in order to pull Europe out of recession. However, many market analysts voiced disbelief in more cutting action.

U.K. industrial output rose 0.7 percent in March and jumped more than three times above median forecast. Another separate report on construction output in Q1 contracted to lowest record in 14-year record by 2.4 percent decline. In the same period, trade deficit has shown improvement in goods narrowed to GBP26.4 Billion from GBP27.1 Billion.

Technical Forecast

USD/JPY has finally broken above 100.00 benchmarks which turn into strong support now. Technically, we reckon the trend will continue to run up amid weakening Yen. The upside target lies at 106.50 over weeks and traders are advised to plan long entry on draw down retracements.

EUR/USD has begun to turn down in selling sentiment after 1.3150 resistances could not be violated. This week, we expect the market to make initial consolidation on first few days at 1.3050 – 1.3080 regions then follow by another downfall. In our studies, the trend may reach 1.2800 targets as Dollar begins to strengthen against Euro.

GBP/USD also moves in bearish trend amid rising Dollar. This week, we reckon the market will consolidate at 1.5450 – 1.5480 resistances before another slide entail. The first target at 1.5200 is within reach in case market bears emerge again. Abandon your short-view if the market pierces above 1.5500 resistances.

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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