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Credit Default Swap Haunts Global Market

A guest post written by DAR Wong

Currency Market Observations – 15 February 2016

Fundamental Outlook

Global equity markets plummet due to resurging fear in euro debt crisis. Credit Default Swap (CDS) in Deutsche Bank climbs to new record high as 2011 and haunts global equities in fear. Federal Reserve chair Yellen addresses concern that moving to negative interest rates might not resolve the economic slowdown. U.K. contracts in manufacturing and retail sales.

The U.S. trade deficit widens as exports fall due to strong Dollar. Trade gap rose 2.7 percent to USD43.4 billion in December while previous month deficit was revised down to USD42.2 billion.

Another separate report on retail sales grew 0.2 percent in January while core retail, excluding automobiles, gained 0.1 percent. Import prices fell on strong dollar and lower crude prices when January index lost 1.1 percent.

Federal Reserve chair Janet Yellen addresses concerns of adopting negative interest rates that might trigger other market risks. This will dampen average investors and not help in lifting economy recovery.

Dow Jones benchmarks closed at lowest since February 2014 with global plunge in equity markets. Deutsche Bank is reported with credit default swap totalled at USD64 trillion, highest since Lemann Brothers collapsed in 2008. Investors are shunning the stock markets and move into precious metals as safe haven.

Japan’s current surplus rose to JPY1.64 trillion in December and highest in 7 months. Yen rose aggressively against Dollar last week as fund flight out of greenback.

German industrial output fell by 1.2 percent in December as exports dropped, the strongest decline since August 2014. Trade balance gained EUR19.4 billion and down from EUR19.7 billion from November.

U.K. manufacturing output contracted 0.2 percent in December after slumped 0.3 percent in previous month. NIESR estimates GDP growth in the quarter ended January gained 0.4 percent.

German prelim GDP for the final quarter grew 0.3 percent and in-line with forecast. Final consumer prices dropped 0.8 percent on monthly basis compared to December.

Technical Forecast

USD/JPY has plunged from 121.44 highs since 2 weeks ago and closed at 113.20 on Friday. This week, we reckon the trend will recover at 114.50 – 115.00 regions for profit-taking. Breaking below 111.00 support may drive lower to 108.50 targets if bears take charge again.

EUR/USD has been trading in mild bullish sentiment last week. Technically, the trend is supported at 1.1130 – 1.1150 regions. Traders may try to push the prices higher to 1.1500 levels this week if the aforementioned support can remain unviolated. Risk control is advised on cautious trading.

GBP/USD has formed a flag formation on day-chart and aims to break out in either direction this week. We have identified the support to lie at 1.4400 while resistance emerges at 1.4600 levels. In our opinion, there is higher probability in bull trend once the trend pierces above 1.4600. Thereafter, target could be set at 1.4800 regions.

Dar Wong

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

DAR Wong is a registered fund manager in Singapore with 26 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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