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China Reports First Ever Corporate Bond Default

A guest post written by DAR Wong

Currency Market Observations – 10 March 2014

Fundamental Outlook

The US non-farm payroll gains while China reports worrisome trade balance in worst record over 2 years record. China reveals the first case of corporate bonds default and stir fears in market for coming week. European Central Bank and Bank of England hold benchmark rates unchanged while the British citizens expect the interest rates to rise in coming 1 year.

The US Institute for Supply Management’s manufacturing index rose to 53.2 from 51.3 in January. Another report on services index by the same institute recorded at 51.6 in February and down from prior month 54.0, showing a slowdown in services sector probably due to storm weather.

The US jobless claims declined by 26,000 to 323,000 in the week ended March 1, showing lesser dip and pushed DJIA higher into positive regions.

On Friday, American payroll grew 175,000 in February after followed 129,000 gains in prior month, emerging from weather storms and above forecast. Jobless rate recorded at 6.7 percent vs. 6.6 percent previously.

Recently, China’s HSBC final manufacturing PMI remained flat at 48.5 and pulled down the Asia equities. Over the weekend, another data on exports fell the most since global crisis in February due to overseas shipment declined 18.1 percent from a year ago. Imports rose higher than forecast at 10.1 percent, leaving a trade deficit of USD23 billion and the biggest in past 2 years.

A Shanghai solar cells maker creates the first-ever default in China’s onshore bond market after failing to pay full interest due. The number of publicly traded non-financial Chinese companies whose debt-to-equity ratios exceed 200 percent has jumped 57 percent since 2007.

Eurozone’s final manufacturing gauge stayed at 53.2 and UK’s manufacturing at 56.9, both in line with market without better outlook.

European Central Bank held interest rates unchanged at 0.25 percent in last week meeting. President Mario Draghi signals that deflation risks in the Eurozone are easing and forecasts inflation will approach their target by the end of 2016.

German industrial output rose for a third consecutive month in January. Production, adjusted for seasonal swings, increased 0.8 percent from December. The final services PMI on the grouped 18 nations read at 52.6 in February and higher than prior month 51.7.

UK services expanded for a fourteen month in February as Markit reported the PMI readings at 58.2 compared with 58.3 in January. A survey by Bank of England shows expectation of interest rates will rise to highest in 2 years record in next 12 months. Governor Mark Carney has pledged to remain low borrowing costs until unemployment falls to 7 percent. The current jobless data records at 7.2 percent.

Technical Forecast

USD/JPY settled at 103.25 for the weekend after making strong thrust after mid last week. The market will sit on 102.30 supports and probably climb further to 105.00 areas this week. Technically, we reckon the trend has emerged from consolidation after trading sideways for 1 month. Abandon your long-view if the prices fall below 102.30 supports.

EUR/USD reached new 4-month high record at 1.3915 on last week. This week, we predict the trend may ascend further with support sitting at 1.33800 levels. Technically, we foresee the bulls may climb to the next possible target at 1.4100 areas as sellers are forced to short—cover in coming weeks. Control your risk at 1.3800 in case the bears return.

GBP/USD traded in small consolidation last week as it closed at 1.6710 on Friday. The market is now sitting on 1.6650 supports which breaking beneath will reach down to 1.6500 areas. However, the bullish trend in Euro currency for coming week may be leading factor to drag Pound higher. Beware of piercing above 1.6800 resistances that may go up to 1.6950 levels.

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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