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Bernanke Remains Stimulus Policy

A guest post written by DAR Wong

Currency Market Observations – 24 March 2013

Fundamental Outlook

The U.S. economy is gaining traction on recovery in housing and job markets. FED Chairman Ben S. Bernanke says the policymakers will consider more stimulus provided job increment shows optimism. He also commits to continual monthly asset purchase of USD85 Billion into supporting U.S. markets. Cyprus faces viral debt crisis as the government rejects the proposal of imposing tax levy on bank depositors to raise EUR5.8 Billion. Worries flare up in Euro markets as observations are pinned on coming Tuesday when Cyprus banks re-open.

The U.S. National Association of Home Builders/Wells Fargo index reported the builder confidence slid 2 points to 44 in March, making unexpected decline. Another separate report showed housing starts climbed by 0.8 percent in February to a 917,000 annualized pace. Existing home sales increased 0.8 percent in February to a 4.98 million annualized rate, the most since November 2009.

The Federal Reserve Chairman Ben S. Bernanke announced the continual asset purchase of USD85 Billion monthly in last week. In the FOMC statement, he said more improvements are needed in the labor market before policymakers will consider reducing the monetary easing policy.

Japan’s exports dropped 2.9 percent in February from a year earlier, more than expected forecast. Imports rose 11.9 percent, leaving a trade shortfall of JPY777.5 billion (USD8 billion). Yen has stopped devaluing for almost 2 weeks while market traders stay sideways to observe imminent action of new Bank of Japan governor and Prime Minister Shinzo Abe. In Eurozone, the monthly German investors confidence reported by ZEW Center for European Economic Research in Mannheim indicated its index advanced to 48.5 in March from prior month 48.2, making highest in past 3-year record. On Friday, another report on German business confidence measured by Ifo institute in Munich said its business climate index declined to 106.7 from 107.4 in February, falling from 10-month high record.

Cyprus faces difficulty in sovereign repayment while European Central Bank agrees to bailout only if Cyprus government could raise partial rescue funds. Early last week, European and Asia stocks were sold down in panic trends when the Cyprus government considered raising EUR5.8 Billion from imposing tax levy on local bank depositors. President Nicos Anastasiades visited Moscow for rescue plan but failed.

On the other hand, the European Central Bank threatening to cut off emergency funding for Cyprus’s banks unless it agrees to the terms of a European Union-led bailout. Market traders are staying sideways to observe the situation as the Cyprus government announces the local banks will re-open only on 26 March.

Technical Forecast

USD/JPY has been trading largely from 94.00 – 96.00 ranges last week. Yen gradually strengthens again while traders wait for more actions from Bank of Japan. This week, we reckon the trend will remain inside this consolidation but breaking below 94.00 supports may land at 92.50 levels. Piercing above 96.00 resistances will indicate return of bullish trend.

EUR/USD took a dip to 1.2843 last week but turned up immediately upon bargain hunting. On topside, the market remains pressured at 1.3100 resistances due to Cyprus crisis and the market may purely react to this ongoing news in coming week. Technically, we reckon the trend will swing sideways from 1.2840 – 1.3100 ranges but beware if the bears penetrate below 1.2840 supports should Cyprus debt deepen.

GBP/USD has been recovering to our predicted levels at 1.5270 areas as written previously. The market is moving in technical consolidation and also flight from Euro currency investors. This week, we foresee the bullish target will reach around 1.5280 – 1.5320 regions before fizzling out again. There is a possibility to climb to 1.5500 targets in case of an unexpected extremely strong recovery. Otherwise, expect range may just loiter from 1.5100- 1.5300 regions.

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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