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Currency Market Observations – 11 July 2011

A guest post written by DAR Wong

The U.S. economy disappoints market in lesser jobs

Fundamental Outlook

The European Central Bank (ECB) and People’s Bank of China (PBOC) both raised rate last week to contain rapid inflation. The U.S. non-farm payroll disappointed the market on Friday with least growth over past 9 months. Greece was still in procedure of being bailed out while Portugal faced downgrade by Moody’s agency last week. Japan sees a recovery after data showed rebound after March crisis.

The U.S. factory orders rose 0.8 percent in May and less than forecast but still indicating recovery though small. The Institute for Supply Management’s index of services index decreased to 53.3 in June, less than forecast and down from prior month 54.6. Another data showed jobless claims fell by 14,000 to 418,000 in the week ended July 2 with more job openings.

On Friday, the U.S. non-farm payroll added only 18,000 jobs in June and far lesser than forecast. Unemployment rate increased to 9.2 percent and brought down energies prices. The U.S. stock slumped on the bad data while investors are waiting for the announcement from FED Governors on 2 August in deciding the new budget ceiling above USD14.3 trillion deficits.

Japan’s current account surplus narrowed down in May. The gap shrank 51.7 percent from a year ago to JPY590.7 billion (USD7.3 billion), lesser than median forecast. Analysts presumed the ailing economy should start to turn around after the national crisis as the recession has come to worst levels.

During mid week, China’s central bank raised interest rates by quarter point to lending and deposit rates then followed by Portugal downgraded by Moody’s Investors Service. Crude oil prices plunged while reacting to probable slowdown in these 2 huge economies. However, Chinese Premier Wen mentioned there may be no more rate hike till year end as Government is confident in containing flaring inflation.

On Thursday evening, ECB raised 25 basis points in its benchmark rate to 1.5 percent and lifted the euros against greenback. President Trichet said policymakers will hike rate further in coming months if inflation persists. Despite that, euros were unsteady in fluctuations due to low investors’ confidence in Greek bailout. Though the rescue aid has been approved in principle, ECB claimed unwillingness to accept any default-rated Greek bonds as collateral and roll-over of these debt instruments may be delayed.

Lloyds Banking Group Plc (LLOY) in London said U.K. housing prices increased 1.2 percent in June, when they gained a revised 0.4 percent. From a year ago, prices dropped 1.6 percent to an average GBP163,049 (USD261,107). Housing data is still mixed from different sources.

U.K. factory output increased 1.8 percent in May, the most since March 2010. In overall, British economy is still in slow recovery due to Government’s budget cuts, soaring prices hit consumer confidence and global demand weakens. On Thursday, the Bank of England kept its benchmark interest rate at a record low.

Technical Forecast

USD/JPY declined almost 100 pips on Friday but supported at 80.50 regions. We have identified the next strong support at 80.00 levels while topside capped at 81.50 resistances. The market will trade sideways within new range with probably no new direction in coming week. Abandon your view if the trend reverses against you and moves beyond the extremes!

EUR/USD traded low at 1.4205 last Friday after U.S. major figure and swung up to 1.4350. We reckon the market will consolidate this week and bias to bullish sentiment. If the existing 1.4200 supports can hold well, the bulls may find its way back up to 1.4450 regions. Abandon your long-view if 1.4200 is violated.

GBP/USD is temporarily well supported in the 1.5900 – 1.5900 regions. This week, we expect the trend to be consolidating upward to 1.6250 regions. As U.K. is recovering from short-term technical strength, we favor to establish long trades unless the aforementioned supports broken!

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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