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China’s Manufacturing Declines Amid US Tapering

A guest post written by DAR Wong

Currency Market Observations – 3 February 2014

Fundamental Outlook

The US housing demand remains wobbly as growth slows down. FED announces tapering of another USD10 billion and triggers sell-off in global equity markets. China’s manufacturing PMI declines and puts pressure on Asia asset bubbles as slowdown deepens. However, UK housing prices pick up in tandem with GDP gains.

The US new home sales dropped 7 percent to 414,000 annualized pace in December and below median forecast. Another separate report on orders for durable goods was unexpectedly down 4.3 percent. Consumer confidence improved in January at 80.7 compared to prior month revised 77.5.

The American pending home sales slumped 8.7 percent after a revised 0.3 percent drop in November. Weekly jobless claims climbed by 19,000 to 348,000 as of 25 January and created highest number since last December.

The US growth for Q4 rose 3.2 percent pace after advancing 4.1 percent in prior 3-months ended September. Household purchases, which account for about 70 percent spending in overall economy, rose 0.4 percent in December after a 0.6 percent gains in prior month that was larger than previously estimated.

In last week’s FOMC meeting, the US FED policymakers announced second tapering of stimulus for a second straight meeting as Janet Yellen prepares to succeed Bernanke. Withdrawal of another USD10 billion in monthly stimulus will begin in February, bringing down the amount to USD65 billion in bond purchase, while aiming to end the program by December.

China’s manufacturing gauge fell to a 6-month low in January at 50.5, amid slowdown as government reins in controlling excessive credit. Another separate manufacturing PMI reported by HSBC Holdings Plc and Markit Economics said in earlier week that January data contracted to 49.5, underscoring the risk of a deeper slowdown in the world’s second-biggest economy.

Japan’s inflation increased in December as core prices rose 1.3 percent from a year ago. Bank of Japan’s record stimulus that Governor Haruhiko Kuroda began last April has helped to devalue Yen, boosting fuel prices and stoking broader inflation toward the central bank’s 2 percent target.

German Ifo institute’s business climate index gained to 110.6 in January from 109.5 in December, suggesting the largest economy in Eurozone is picking up fast. Another report on unemployment plunge more than expected in January after dropping a seasonally-adjusted 28,000 to 2.93 million vs. contracting at revised 19,000 in December. Jobless rate slid to 6.8 percent and unchanged from revised figure in December.

UK gross domestic product rose 0.7 percent in the fourth quarter, ending the best year since 2007. British banks made 71,638 home loans in December, up from 70,820 a month earlier and reported at highest record since January 2008. Nationwide Plc, a mortgage lender, surveys that housing prices rose 8.4 percent in 2013 and shows monthly increase of 0.7 percent in January to an average GBP176,491 (USD292,322).

Technical Forecast

USD/JPY has been dropping as yen rises. The market sank down below our expected support at 102.50 while it closed at 101.94 for the weekend. This week, we reckon the bear trend may continue and likely test 100.50 supports if selling pressure persists. Resistance will build up at 104.00 regions and only ascending above this level will reverse market sentiment into bullish trend.

EUR/USD behaved bearish last week due to rising Dollar against European currencies. The market fell off recent high at 1.3739 and closed at 1.3485 on Friday. This week, we expect the bear to test 1.3400 supports before bargain-hunting emerges. Resistance will build up at 1.3600 areas in case of pull up retracement.

GBP/USD has turned into down trend as profit-taking began to step into market last week. The market is prone to decline further in coming week as resistance emerges at 1.6550 regions. On going lower, we foresee the bear will probably hit the targets at S1 – 1.6300 or even lower at S2 – 1.6200 levels.

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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