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Currency Market Observations – 2 May 2011

A guest post written by DAR Wong

The U.S. and Eurozone Business Outlook Decline Due to Inflation

FUNDAMENTAL OUTLOOK

The U.S. Federal Reserve (FED) Chairman Ben S. Bernanke says high unemployment and housing foreclosures are undermining recovery but reassures of continual injection once the schedule stimulus completes in June. Eurozone has been hit by stoking inflation that slows down manufacturing and business outlook due to rapid rise in oil prices. Sovereign debts remain viral despite euro currency creeps firm.

The S&P/Case-Shiller index of property values in 20 U.S. cities fell 3.3 percent in February from a year ago. Housing doldrums have been persisting in U.S. markets since 2005 that is entrapped in recession economy. Orders for durable goods climbed 2.5 percent in March after a 0.7 percent gain the prior month, indicating expansion in business equipments but need another month to observe the demands.

The U.S. gross domestic product (GDP) lost steam to 1.8 percent annual pace in Q1 from last quarter 2010 at 3.1 percent. The Institute for Supply Management-Chicago Inc. reported its business index declined to 67.6 in April from prior 70.6. Initial jobless claims also rose higher to 429K in the week ended 23 April. Last week, treasury bonds rose for a third week after FED committed to maintain stimulus through June to safeguard the liquidity in markets.

Japan’s retail sales tumbled the most in 13 years in March after national 311 crises. Sales slumped 8.5 percent from a year earlier and worst in 13-year record. Industrial output also slid 15.3 percent in March. Prime Minister Naoto Kan unveiled another JPY4 trillion (USD49 billion) extra budget to rebuild the northeast area that was devastated by the earthquake and tsunami. The government estimates that damages from recent disaster has reached JPY25 trillion (USD306 billion) and left some 26,000 people in death or missing.

German retail sales eroded for a second month in March when sales, after adjusted for inflation and seasonal swings, dropped 2.1 percent from February. German inflation quickened to 2.6 percent in April, the fastest pace in 18 months while being driven by surging oil prices.

In the whole 17 nations, Euro-region’s inflation soared to 2.8 percent in April and waned off the economic growth. An index of executive and consumer sentiment reflecting business slipped to 106.2 from 107.3 in March, the sharpest drop since May 2010, and unemployment held at 9.9 percent. Greece’s budget deficit exceeded Government estimates and the euro area’s overall debt reached a record, narrowing Europe’s options for putting an end to the fiscal crisis.

TECHNICAL FORECAST

USD/JPY has been bearish after attaining 82.77 highs last week. In our opinion, the market has to skip above here to recover the bullish strength. However, we reckon more possibility to test the downside support at 80.50 regions in coming week while moving in tight range. Yen is now waiting for rescue from stimulus or interventions otherwise will trap in little movements.

EUR/USD is very tricky at current top resistance 1.4880 regions though it may turn down anytime. Pushing modestly higher above 14880 in coming week will probably try 1.5000 benchmarks but sliding below 1.4750 could instantly start new bearish engine in markets. We prefer to wait till mid-week to hunt for shorting opportunity.

GBP/USD is also showing slight ambiguity in its sentiment. The market may break above 1.6750 and try 1.6880 levels before turning southwards. Alternatively, sliding beneath 1.6620 could initiate new selling interest. We also prefer to wait till mid-week like euros since both European currencies are in same trend now.

 

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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