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Britain Gains Traction in Recovery

A guest post written by DAR Wong

Currency Market Observations – 20 January 2014

Fundamental Outlook

The US gains traction in retail sales and growth in inflation. China increases the holding of US Treasury assets on record high volume. The European policymakers are beginning to take measures in steering away from repetitive debt crisis while UK continues to show strength.

The US retail sales gained 0.2 percent in December after 0.4 percent advanced in prior month. Producer prices climbed 0.4 percent in the final month of last quarter for the first time. Core prices rose 0.3 percent and 3 times the median forecast.

Another separate report that measures inflation shows US consumer prices rose 0.3 percent in December, making the biggest jump in 6 months. Core prices were up 0.1 percent as expected in forecast. Jobless claims were reported at 326,000 for the week ended 11 January.

The US industrial production grew 0.3 percent in December but slightly below median forecast. Housing starts fell 9.8 percent to a 999,000 annualized rate following November’s 1.11 million pace that was the highest in last 6 years.

Market economists interpret the US as modest recovery in inflation but demands for housing and manufacturing must show better improvement for a good head start in this year. Last week, the Government House passed USD1.1 trillion bipartisan spending bill that will finance the federal government through 30 September, while aim to avoid shutdown like in last October.

According to US Treasury Department, China has increased the holding of US Treasury by USD12.2 billion to record USD1.317 trillion in November. Japan’s holding rose USD12 billion to USD1.186 trillion in the same period.

Under the “abenomics” policy, Japan’s success in expanding the inflation has convinced policymakers that stimulus may remain firm to ensure growth. In short, there could be a risk of collapse in Japan’s economy if the bonds yield surge in case Bank of Japan winds down bond purchases.

In a separate report, Japan’s core machinery orders for December jumped 9.3 percent and surprised the market while the previous month recorded only 0.6 percent gains. Nikkei 225 benchmarks continued to stay firm last week as the market closed below 16,000 levels with buying interest rising from 15,500 supports.

Officials from European Central Bank comment that a new regulation may be implemented soon to require banks to ensure their capital stay above 6 percent of their assets when it puts them through a simulated recession later this year.

The UK consumer prices were marked at 2 percent in December on yearly basis and met the criteria of demands of central bank. Core prices gained 1.7 percent from a year ago. The retail sales rose 2.6 percent in December that was strongest since 1996.

Technical Forecast

USD/JPY was supported at 103.00 levels while market closed above 104.00 on Friday. This week, we still foresee the trend will be sideways while down move might test 102.50 supports though buying interest could be large. On the contrary, selling pressure at 105.00 – 105.50 regions will be building up too for probably profit-taking.

EUR/USD has been dropping last week while capped at 1.3700 resistances. The market is prone to meet bargain hunting at 1.3500 areas in early this week. We expect the trend to trade sideways from 1.3500 – 1.3650 ranges for consolidation. However, beware of the bears piercing below 1.3500 supports as this might drive down to test 1.3400 levels.

GBP/USD was bearish last week but market short-covered on Friday from 1.5309 bottoms. This week, the market is potential to travel in either way while aiming for large range. In our opinion, the 1.5450 must be remained intact as the violation may lead higher at 1.5520 regions. On the other hand, the closing below 1.5400 levels on Monday might weaken the demand and land at 1.5200 as our first target!

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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