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China Causes Kneejerk in Asia Stocks

A guest post written by DAR Wong

Currency Market Observations – 27 May 2013

Fundamental Outlook

The U.S. housing prices recover moderately with buyer’s interest returning to markets. China announces a decline in manufacturing data that has pulled down Asia equities. On Thursday, Japan Nikkei 225 Average Index fell over 700 points in tandem with rising yields. Britain sees moderate growth recovery after GDP rose in Q1.

The U.S. existing home sales increased 0.6 percent in April to an annual rate of 4.97 million, the most since November 2009. New home sales also was up 2.3 percent to an annualized pace of 454,000 homes from 444,000 in March. Demands in houses signal the confidence of investors in taking advantage of low mortgage rates and historical low prices.

The weekly jobless claims slid 23,000 to 340,000 in the week ended May 18. Orders for U.S. durable goods rose 3.3 percent in April after dropping 5.9 percent in March, indicating better demands for hardware and expansion by companies in coming months.

The U.S. Treasury Department announces further steps to keep funding the government without going over the nation’s debt limit. Market analysts expect another stalemate between Congress and the Obama administration at the end of Q3 when the budget finishes. FED Chairman Ben S. Bernanke says a premature withdrawal in stimulus will hamper overall recovery and plummets USDX from 34-month high at 84.49 tops.

China’s manufacturing report contracted in May after the Purchasing Managers’ Index dropped to 49.6 in May, making first decline in past 7 months. On Thursday, Asia stock markets sank upon fear and Nikkei plunged over 700 points upon closing.

Japan’s exports rose 3.8 percent in April from a year earlier but less than forecast. Trade shortfall widened to the largest in three months at JPY879.9 billion (USD8.6 billion). Japan Government Bonds (JGB) has been falling as the 10-year yields rises to 1 percent for the first time in a year. Nikkei 225 Average Index (N225) was threaten by the jump in yield rates and hammered simultaneously by China’s slowdown!

The U.K. retail sales including fuel shed 1.3 percent in April after falling 0.6 percent in prior month. Another report shows the budget deficit widened in April with shortfall, excluding temporary support for banks, at GBP10.2 billion (USD15.4 billion) compared to GBP8.9 billion from a year earlier.

Britain’s Gross Domestic Product (GDP) rose 0.3 percent in Q1 while matching initial estimate. Inventories increased by GBP2.5 billion (USD3.8 billion) in the same quarter while consumer spending rose 0.1 percent. Growth returns to U.K. economy at moderate rate while exports fell 0.8 percent and business investment fell 0.4 percent in Q1.

Technical Forecast

USD/JPY turns down from recent high 103.73 to 101.00 regions on higher JGB rates. The market is prone to make some correction in coming week amid liquidation of long trades. Technically, we foresee the trend will reach 99.50 – 100.00 supports before climbing up again. Current resistance caps at 103.50 levels. Overall trend in coming months should be still firm after this short-term drawdown.

EUR/USD began to consolidate last week from 1.2830 supports amid falling Dollar towards weekend. This week, we foresee the trend will continue to be prone to firmness while resisted at 1.3050 regions. The overall range is expected to move from 1.2850 – 1.3050 bands with mild short-covering to emerge. Abandon your long-view in case the trend falls beneath 1.2800 supports.

GBP/USD has been supported at 1.5020 levels after taking a quick dip beneath this bottom last week. Technically, we expect the trend to recover at 1.5300 regions so long as the bulls stay above 1.5020 supports. Some buying interest will be expected to emerge in market due to better outlook in Britain’s economy from the long-persistent austerity measures.

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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