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Currency Market Observations – 20 Jun 2011

A guest post written by DAR Wong

Looming Greek debts clouds fear on global recovery

Fundamental Outlook

The US economy shows inflation but without recovery from housing slump. FED Chairman Ben S. Bernanke defends nation’s budget deficit to irrelevance of preset debt ceiling as this could hamper disruption in financial markets. Greek sovereign debts resurface and caused worry to global pull down amid resolutions by the European Union officials.

The US retail sales fell 0.2 percent in May and lesser than median forecast. The consumer-price index increased 0.2 percent in May and was up 3.6 percent from a year ago. Core prices rose 0.3 percent on monthly basis. The data showed inflation that put pressure on policymakers on higher rates but without recovery in housing demands.

The US Federal Reserve Bank of Philadelphia’s general economic index fell to minus 7.7, the lowest since July 2009, from 3.9 the prior month. On Friday, leading indicator measured by Conference Board gauging the outlook of oncoming 6 months rose 0.8 percent after a revised 0.4 percent drop in April.

The International Monetary Fund cut its forecast for US growth in 2011 to 2.5 percent this year, down from 2.8 percent projected in April, warning setbacks in global recovery along with potential contagion from the European debt.

The resurgence of Greek sovereign debts notched the investors’ confidence amid worsening situation. The debt crisis of uncertainty caused crude oil tumbled below USD95 a barrel on Wednesday Chicago session for the first time since February, probably due to global slowdown in demands and recovery from weak performances.

While the bailout of Greece has been shifted to July for deeper evaluation, European Union officials are moving closer to mutual agreement for a new aid package. Germany insisted its participation only if European Central Bank (ECB) agrees to include private investors but ensuring no defaults of loans.

UK consumer confidence gained 11 points in May from prior month to 55, the highest in five months, as pessimism waned. Housing demands are still weak though some Britons reckon it may be good time to start purchasing now. Retail sales fell 1.4 percent from April, when they rose 1.1 percent, due to rising inflation and unstable employment.

BOE Governor Mervyn King said officials should continue to hold interest rates at a record low as weak growth in wages and money supply indicate the existing inflation will prove to be short-lived. British inflation rose to 4.5 percent in May, more than twice the bank’s 2 percent goal, but has seen no rise in workers’ salaries. Wage growth including bonuses weakened to 1.8 percent in the 3 months through April from 2.4 percent in the Q1.

Technical Forecast

USD/JPY has been moving about 80 pips on average daily range without much force. The market is now trapped from 79.50 – 81.00 regions while the bulls are gradually diminishing. We expect immediate resistance to act at 80.40 levels but downside room is more opened due to weak fundamental reasons once the aforementioned support is broken.

EUR/USD has found a support at last week’s low 1.4073 and rebound since. This week, we reckon a technical consolidation will appear with tight range moving from 1.4200 – 1.4450 unless some unexpected news emerge. The market is in a long-term down trend while making inner recovery waves now. For short-term trading, abandon your long-view if the trend drives beneath 1.4200 supports!

GBP/USD is well supported at 1.6080 – 1.6100 regions. The market has immediate resistance acting on 1.6230 while topside technical could reach around 1.6350 this week. Pound is sliding on long-termed trend with good opportunity to capture sell entry on every pull up retracement. While we expect upward technical recovery to emerge this week, long traders should abandon trades if the market unexpectedly breaks below 1.6080.

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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