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Currency Market Observations – 22 Aug 2011

A guest post written by DAR Wong

The Japanese Yen Reaches New High against Greenback

Fundamental Outlook

The U.S. has rising inflation despite slow reaction on stimulus by FED governors. Japanese Yen surges to new historical high against greenback and Government calls for joint intervention with G-7 nations. Eurozone remains quiet on debt crisis while British Pound soars amid smaller budget deficits.

The U.S. industrial output rose 0.9 percent in July and twice as much the forecast. Producer price index rose 0.2 percent in July after followed a 0.4 percent drop in June. Another report on housing starts fell 1.5 percent to a 604,000 annual rate from June’s 613,000 pace that was less than previously estimated.

Inflation surfaces when U.S. consumer-price index increased 0.5 percent in July, twice higher than forecast. Jobless claims climbed by 9,000 to 408,000 in the week ended 13 August, the highest in a month. Another separate report on U.S. existing home sales for July decreased 3.5 percent to a 4.67 million annual rate.

Japan’s exports decreased 3.3 percent in July from a year earlier and fell more than expected. Rapid rising yen has been weighing down on the overseas shipment. GDP shrank at an annual 1.3 percent pace in the three months ended June. This third consecutive quarter of decline marks the persistent recession I Japan’s economy.

Japan called on Group of Seven (G-7) nations to address global market turmoil amid faltering recovery in U.S. economy. Bank of Japan (BOJ) is worried of further yen that will stall Japan from recovering in recent Tsunami crisis.

British retail sales including fuel rose 0.2 percent from June after it was up at revised 0.8 percent in prior month. The U.K. government posted a smaller budget deficit in July than median forecast due to raising taxation and banking reforms. The report showed GBP20 million (USD33 million) deficit, excluding government support for banks, compared to GBP3.5 billion shortfall a year earlier. The unexpected good news kept Pound strong last week.

Technical Forecast

USD/JPY made a record low at 75.95 last week but jumped up on Japan’s calling for intervention. It is hard to gauge the bottom of market but we reckon a rapid recovery to 80.00 may occur anytime if intervention incepts into market. We prefer to take long side of the market with controlled risk and aim at higher grounds.

EUR/USD is now looking to trade in the bullish zone from 1.4270 – 1.4520. Though we do not favor higher escalation, fundamental factors induced by European leaders may push the market to 1.4600 levels. On the other hand, we will prepare to resume bearish view only if the trend sinks and settles beneath 1.4270 again!

GBP/USD showed a strong reversal down-sign after it hit 1.6618 high on Friday. We foresee sideway consolidation will occur in coming week while prone bias to bearish sentiment. Range trading may constrict to 1.6300 supports to current high regions at 1.6600 levels. Abandon your short-view if the market violates above 1.6618 again!

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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