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Currency Market Observations – 18 July 2011

A guest post written by DAR Wong

The US and Euro currency both vie for weakness

Fundamental Outlook

The US Dow Jones Industrial Average was mostly down last week while waiting for President Obama and Congress to sort the final decision in raising ceiling budget limit before deadline 2 August. Euros fell on weekly basis after reacting to the stress tests conducted among European banks and Ireland was downgraded by Moody’s agency.

The US trade deficit widened in May with gap opening to 15 percent and totaled USD50.2 billion, highest in last 3 years. Another report showed monthly budget deficit at USD43.1 billion in June, smaller than a year ago when it was USD68.4 billion, as a result of slowdown in economy especially in job growth.

President Barack Obama and Congress are still fighting hard to agree in raising US budget ceiling as the deficit approaches USD14.3 trillion statutory debt limits, underscoring a serious bog down in American growth while facing the challenge of being downgraded in its debt credit rating if more money supplies are printed.

The US jobless claims fell 22,000 in the week ended July 9 to 405,000, worst than expected. The monthly industrial output rose meager 0.2 percent in June after followed a revised 0.1 percent decrease the prior month that was initially reported as a gain. Another report on consumer price index was down 0.2 percent with core prices rose 0.3 percent. All above data indicate stagnated growth as unemployment soars.

ECB finance chiefs have been searching in many avenues to cut Greece’s debt ranging through bonds purchase and rollovers of old debts but still failed to contain the debt crisis. In recent stress tests, 24 European banks barely passed the capital limits while 8 failed. Most will need to go through second round of stress tests by regulators.

Euro currency has been unstable while making a quick pull up to 1.4270 regions last week. The currency is still declining on weekly basis and may be falling continually in coming weeks. Ireland was downgraded to Ba1 from Baa3 in slump amid other zones in bad debts crisis.

UK unemployment claims rose at fastest in June. The benefit claims rose by 24,500 from May to 1.52 million. Analysts interpret the austerity measures and slow retail demands are putting lid in slow recovery. Housing slump and fatigue in factory output indicate little confidence in the retail markets.

In a separate report by Rightmove Plc, British homes dropped 1.6 percent in July vs. 0.6 percent gain in prior month, making first monthly fall this year.

Technical Forecast

USD/JPY broke the last support at 80.00 regions but stood firm at current grounds 78.50 levels. The market traded lower last week with higher yen mainly due to weakening US outlook. This week, we expect the market to thread sideways from 78.50 to 80.00 regions with little range performance. Abandon your long-view if the market breaks beneath 78.50 supports.

EUR/USD should be well resisted at 1.4200 this week while looking to turn down. On breaking 1.4100 supports again, we forecast the bears will drive the prices down to 1.3950 regions. However, beware of fundamental news in Eurozone that may trigger some short-covering above 1.4270 and reach 1.4350 as the next resistance targets.

GBP/USD broke our previous supports 1.5900 early last week but rebound very quickly from the low 1.5780 to 1.6194 highs. This week, we expect a short-term double possibility to occur. Based on fundamental new as driving force, the market may either drive down to 1.5970 regions or reverse up to try higher grounds at 1.6260 before facing exhaustion. However, the market is still bearish in long-term outlook.

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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