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China will Inject New stimulus to Bank Lenders

A guest post written by DAR Wong

Currency Market Observations – 20 October 2014

Fundamental Outlook

The US job market continues to recover though other sectors remain sluggish. China pledges to inject second round of injection before year-end. Eurozone sinks into slowdown while Greece’s sovereign debt returns in threat. UK surprises with inflation fall though job market has improved.

The US core retail sales in September contracted to minus 0.2 percent. Producer prices also slid to minus 0.1 percent against positive median forecast. However, budget deficit shrank in September to lowest record in last fiscal year with shortfall at USD483.4 billion compared with USD680.2 billion a year earlier.

US jobless claims for the week ended 11 October dropped 23,000 to 264,000 numbers. Job market continues to recover on weekly basis. Industrial production rose 1.0 percent in September and better than expectation. Another separate report on housing starts climbed 6.3 percent to a 1.02 million annualized rate from a 957,000 pace in August.

China’s central bank may plan another new injection of about CNY200 billion (USD32.7 billion) into some national and regional lenders before year-end, mentioned by an anonymous government official. The injection comes after the central bank provided CNY500 billion of liquidity to China’s 5 biggest banks last month.

German investors’ confidence decreased for a tenth month in October. The ZEW Center for European Economic Research in Mannheim says its index declined to minus 3.6 this month from 6.9 in September. While leading a slowdown in the 18 nations, Germany vows to pursue a balanced budget goal as investors are beginning to lose confidence in Eurozone.

In Eurozone, the consumer prices in September rose 0.3 percent from a year but stagnated from previous month. Core prices gained 0.8 percent. Another report on trade balance among 18 nations climbed to USD15.8 billion in September versus revised USD12.7 billion in August.

Euro stocks and bonds have been dropping for a month as yields fly up high after Greece deepens into debt doldrums again. The bailout loans from European Union has become more stringent while Greece sinks into worst recession on record and triggered a political backlash.

European Central Bank policymakers say governments must accelerate plans to re-instate recovery amid slowdown. The economic condition in 18 nations is emulating Japan for having too low inflation and might slips into deflation if stays stagnated for too long.

UK inflation measured by consumer prices grew 1.2 percent and unexpectedly dropped to 5-year low, compared to 1.5 percent gains in August. Core inflation also slowed down to 1.5 percent versus 1.9 percent gains in prior month.

British unemployment slid to 6 percent in the 3 months through August from 6.2 percent in the quarter through July. Jobless claims fell 18,600 in September, less than the 35,000 decline forecast and showed improvement in job market.

Technical Forecast

USD/JPY bounced from 105.18 lows last week while we predicted the 105.00 would serve as strong supports. This week, we reckon the range will move from 105.00 – 108.50 regions but incline to technical bulls. We may see some short-coverings in market as sellers have begun to take profits after market has dropped for 2 weeks.

EUR/USD reached 1.2887 highs last week as we predicted 1.2900 resistances will counter the bullish recovery. This week, we expect the market will thread from 1.2600 – 1.2900 ranges in consolidation. However, breaking above 1.2900 resistances might climb up to 1.3100 levels in case the technical recovery increases in strength.

GBP/USD reversed from 1.5873 bottoms last week amid strength buying interest in day-chart. This week, we reckon the market will continue to trade higher in the range from 1.5900 – 1.6300 regions. The strength will be prone to bullish as sellers cover short position. Abandon your long-view in case market falls below 1.5900 again!

Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

DAR Wong is an approved fund manager in Singapore with 25 years of global trading experiences. You may reach him at dar@pwforex.com

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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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