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Currency Market Observations – 1 Aug 2011

Currency Market Observations – 1 Aug 2011

A guest post written by DAR Wong

The U.S. Congress is unable to reach debt agreement

Fundamental Outlook

The U.S. Congress is in deadlock on reaching an agreement to raise the debt limits and shakes off the U.S. currency. Growth in Q2 was disappointing as more fears linger into buying Gold as safe haven. U.K. economy deteriorates from weaker consumer demands while the investors have started to turn away from Euro debt crisis temporarily. Attentions are focused at the imminent decision of U.S. lawmakers in coming week as a sign to influence global inflation.

The U.S. consumer confidence unexpectedly rose in July as Conference Board’s index climbed to 59.5 from a revised 57.6 reading in June. The new homes sales declined for a second month as purchases dropped 1 percent in June to a 312,000 annual pace. Another report on durable goods also fell in June indicating slow down in business expansions. Bookings for goods meant to last at least three years shed 2.1 percent after a 1.9 percent gain in prior month.

On Friday, U.S. GDP climbed 1.3 percent annual rate in Q2 following a 0.4 percent gain in the prior quarter but lesser than median estimate. Weekly jobless claims slid 24,000 to 398,000 in the week ended 23 July while pending home sales rose 2.4 percent in June as buyers tried to take advantage of lower prices and borrowing costs.

Global investors are waiting for the agreement to be finalized in U.S. Congress on raising debt limit though the debate reaches at deadlock situation. The U.S. Treasury officials said they will give priority to making interest payments to holders of government bonds when due even if talk on debt ceiling fails.

Japan’s factory output increased 3.9 percent in June from May, when it rose 6.2 percent. Major car makers like Honda and Toyota are worried of rapid rising Yen to post World War II levels as it will affect the exports of Japan’s goods.

U.K. Hometrack Ltd said the average cost of a home in July was down 0.1 percent and declined 3.9 percent from a year earlier. Market expects the down falling trend to continue in coming months. Another report on consumer confident index dropped to minus 30, the lowest since April, from minus 25 in June and minus 22 a year earlier.

GDP expanded 0.2 percent in the second quarter and retail sales index fell to the lowest in 13 months in July. Despite that, Pound recovered to above 1.6450 due to rapid weakening dollar. Market analysts expect Bank of England to keep benchmark rates at record low 0.5 percent as Britons are pessimistic of the outlook.

Technical Forecast

USD/JPY declined last week and headed down to 77.01 on Friday as U.S. Congress talk reached at deadlock situation. We reckon the fundamental action from U.S. Governors will decide the trend in coming week though the major supports at 76.50 regions seem to be at high risk. Market needs to reverse higher than 79.30 before the bulls resume.

EUR/USD stands well at 1.4250 regions with strong buying interest. This week, we foresee the trend will consolidate and trade higher to 1.4450 – 1.4500 levels. The market may even drive higher than 1.4550 if U.S. succeeds in raising debt limits. However, beware of drastic decline once the trend breaks and settles below 1.4280 supports on any day in coming week.

GBP/USD jumped up on Friday on U.S. debt concerns and hit unexpectedly above 1.6450 on Friday. The market seems to be well resisted at 1.6470 regions and climbing higher may challenge 1.6550 in coming week. However, this will subject to fundamental factors on dollar weakening. On the downside, market will be well supported at 1.6250 regions for the time being.

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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