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Currency Market Observations – 15 Aug 2011

A guest post written by DAR Wong

The DJIA recovers in technical correction

Fundamental Outlook

The DJIA sank to 11-month record low at 10604 last week and jumped up to close above 11,000 benchmarks on Friday. U.S. FED governors pledge to keep low rates till mid 2013 for stimulating economic recovery. European Central Bank (ECB) also buys more bonds to aid market liquidity while Japanese yen rises to near all-time high against greenback.

The U.S. productivity climbed 0.8 percent from Q2 in 2010 on year-on-year basis. Labor costs rose 1.3 percent in the same time period from last year. Wholesale inventories rose 0.6 percent in June followed a revised 1.7 percent rise in May.

FED policymakers promised to maintain its benchmark interest rate at record low at least through mid-2013 to revive a reversal. Jobless benefits fell 7,000 in the week ended 6 August to 395,000, the fewest since early April. Another report showed trade deficits gap widened 4.4 percent to USD53.1 billion from USD50.8 billion in the prior month. This is the biggest gap since Oct 2008.

The U.S. retail sales rose 0.5 percent in July while consumer consumers plunged in August to the lowest level since May 1980. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment slumped to 54.9 from 63.7 in July.

Japan’s machinery order rose 7.7 percent in June from May, making second rise in consecutive months. However, the overall outlook for Japan’s recovery is still slow despite the government sounded out the possibility to intervene the rising yen again for stimulating exports.

European industrial production unexpectedly slid in June by slipping 0.7 percent. European leaders last month pledged a second bailout package for Greece to restore investors’ confidence and prevent the debt crisis from turning viral.

ECB bought more Italian and Spanish government bonds to drive yields lower. Market analysts estimated the buying program might have reached EUR850 billion (USD1.2 trillion) and will threaten to devalue the euro towards year-end.

U.K. was in civil riot last week. Pound was weakening and remaining unstable amid housing slump. Bank of England (BOE) said may expand stimulus program if economic weakness persists. The policymakers held on to record low interest rates at 0.5 percent last week while inflation has overshot 2 percent limit.

Technical Forecast

USD/JPY declined to the deepest bottoms at 76.30 regions on Friday following U.S. consumer confidence slide. Though investors are waiting for BOJ to intervene again, the selling pressure may punch the prices down to 75.20 soon if no more positive news emerges from Japan. On topside, 78.00 levels have become strong resistance if market reverses up!

EUR/USD is loitering in the mid-zone of 1.4050 – 1.4400 regions while the dollar and euro are both pitting weakness against each other. We expect the resistance to cap at 1.4300 levels while sentiment is more prone bias to selling down. We reckon the violation beneath 1.4050 supports will drive down to 1.3900 targets. Abandon your short-view if the market re-visits above 1.4300 levels.

GBP/USD is threading in mid-zone of 1.6110 – 1.6480 regions though market sentiment is much alike euro. We reckon strong resistances are building up at 1.6330 levels while sentiment is prone bias to selling once it settles beneath 1.6190 again. Abandon your short-view if the market penetrates and settles above 1.6330 levels.

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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