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Currency Market Observations – 16 May 2011

A guest post written by DAR Wong

The Global Inflation Continues to Instill Fear in Policymakers

FUNDAMENTAL OUTLOOK

Outlook The US economy is modestly stable but reflects the continual growth in inflation. UK and Japan’s policymakers comment the worry of fueling rising prices while US steps into contradictory recession. The sovereign debt in Eurozone is triggering fear among investors’ confidence as most countries’ budget deficits have all reached the European Union’s limit.

The US wholesale inventories rose 1.1 percent in March but in line with the median projection. The national monthly budget deficit surprisingly narrowed to USD40.5 billion in April from a year ago as tax revenue climbed. Another separate report showed retail sales made the smallest gain at 0.5 percent pace since last July, after advanced 0.9 percent in March.

The dual reports that measure inflation show moderate gain. Factory gateway cost of manufacturers reflected by producer price index rose 0.8 percent in April while core prices increased 0.3 percent slightly above forecast. Consumer price index gained 0.4 percent matching the median forecast while core prices rose 0.2 percent. The initial jobless claims decreased 44,000 in the week ended May 7 to 434,000, showing some improvement in job markets.

In Japan, the economy drills into doldrums despite Government acts to elevate ailing economy from disaster damages estimated at JPY25 trillion (USD310 billion) losses. Bank of Japan – Governor Masaaki Shirakawa expresses his worries lie in inflation after observing market demands rise in short-term funds while yields for long-term assets are declining. The simultaneous decrease in investors’ confidence notched by the worst recession in U.S, since Great Depression, has instilled fear into many market analysts.

International investors fear the emerging economies in Eurozone could not coup with sovereign debts and will eventually fail in repayment. The revolving debt problems in every quarter will render the group of countries vulnerable to more indebtedness to international creditors. After a year of austerity, Greece ended 2010 with a budget deficit equal to 10.5 percent of gross domestic product (GDP). Ireland topped among all by suffering deficits at 32 percent of GDP. Portugal announced its budget deficits at 9.1 percent, 3 times the EU’s limit.

UK retail sales jumped 5.2 percent in April from a year ago excluding new-store openings, reported by the London-based BRC. According to Royal Institution of Chartered Surveyors, UK housing price gauge rose to the highest level in April in past 9 months as demands stabilizes. Another data release from research companies Acadametrics Ltd and LSL Property Services Plc said home buyers tried to beat sale tax increase by returning to bargain hunting. The average price of a home in England and Wales increased 0.3 percent from March to GBP223,352 (USD363,300) and up 0.9 percent from a year ago.

TECHNICAL FORECAST

USD/JPY moved in tight range over last 2 weeks between 79.50 and 81.50 levels. We expect little movement but with some likely possibility to climb to 82.50 regions in coming week. Market sentiment is still unclear while many expectations are pinned on Japan’s Government to elevate ailing economy. Abandon your long-view if the trend sinks beneath 79.50 supports.

EUR/USD snapped after mid last week and reached 1.4066 low unexpectedly. The plunge came after ECB policymakers commented contradiction against in rate hike and panic in sovereign debts. This week, we expect the market will probably rebound with support holding at 1.4050 levels. The climb above 1.4160 will be good benchmark to signal recovering strength and likely bring the bulls back to 1.4430 regions.

GBP/USD reached last week’s low at 1.6146 and closed near to this bottom for weekend. We foresee a technical rebound in market to follow through coming week. The market has been in losing streak for past 10 days and will strive to recover to 1.6500 regions in near future. Abandon your long-view if the market penetrates beneath 1.6100 benchmarks.

 

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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