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Currency Market Observations – 10 Oct 2011

A guest post written by DAR Wong

The world economy remains fragile amid uncertainty

Fundamental Outlook

The US job data improved in September and stabilizes stock markets. British central bank implements new round of Quantitative Easing (QE) after 2 years and jump-starts pound. After Italy was downgraded by Moody’s Investors services in early last week, European Central Bank announced it will revive the purchase of covered bonds to increase market liquidity.

The US Institute for Supply Management’s factory index climbed to 51.6 in September from 50.6 in August. The gain was unexpectedly due to exports and production. Weekly data on jobless claims increased by 6,000 to 401,000 in the week ended 1 October but lesser than previous week.

On Friday, American payroll rose by 103,000 after a 57,000 gain in August. Gain was unexpected but analysts said the job growth was probably insufficient to stimulate recovery. Jobless rate for September held at 9.1 percent. Another separate report showed consumer credit slid USD9.5 billion in September after followed an USD11.9 billion increase in the previous month. The decline was probably due to lack of confidence in spending or squeeze in income source.

Moody’s Investors services cut credit rating of Italy from A2 from Aa2 and with a negative outlook. On Greece side, Institute of International Finance said investors may be taking on a bigger share of Greece’s rescue costs as market conditions worsen.

The European Central Bank (ECB) said it will soon activate purchases of covered bonds and provide loans to banks to avert risk in regional sovereign-debt crisis. As the largest economy, German industrial output fell 1 percent in August from a gain of 3.9 percent in prior month.

In Britain, factory output prices rose 0.3 percent in September while led by demands surge of petroleum products and electrical equipment. The Bank of England (BOE) introduced its asset-purchase program totaled GBP275 billion (USD424 billion) to increase market liquidity and cushion for another debt crisis. Pound reversed upward after declining for 2 months against the US dollar amid optimism in reviving the faltering economy.

Technical Forecast

USD/JPY traded narrowly in the range from 76.50 – 77.50 regions with no optimistic trend. The market is threading sideways in hopeless sentiment while waiting for new fundamental factors to lead it out of the tight consolidation. Long traders must control your risk at 76.00 levels in case the market plunges on bad news.

EUR/USD poises for technical recovery after making recent low at 1.3144 levels. This week, we reckon a good opportunity to establish long positions at 1.3250 regions if market ever retreats. With backup of fundamental news in ECB’s new QE policy, the market is prone to consolidate and recover gradually to 1.3700 regions in near future.

GBP/USD shows strong rebound in day-chart after making 1.5271 bottoms and reacting on BOE’s new QE program. This week, we reckon the market will be firming up at 1.5450 regions and good opportunity to establish new long positions. Potential topside resistance is acting at R1 – 1.5650 and R2 – 1.5750. Trade from the aforementioned extremes for trend profits while control your risk if the prices break beyond either one of them!

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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