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Currency Market Observations – 23 May 2011

A guest post written by DAR Wong

IMF Rescues Portugal from Sovereign Debts

FUNDAMENTAL OUTLOOK

The U.S. economy shrinks in output and housing problem persists. Japan remains in recession after Gross Domestic Product (GDP) declines for second consecutive quarter. Eurozone struggles in sovereign debts as International Monetary Fund (IMF) bails out Portugal partially on Friday.

The U.S. industrial production unexpectedly stood still in April and housing starts slid as well. Output at factories, mines and utilities was unchanged after a 0.7 percent gain in March while 523,000 houses broke ground at an annual pace and down 11 percent. Another separate report showed existing homes unexpectedly shed 0.8 percent to a 5.05 million annual pace in April, against projected climb.

The Federal Reserve Bank of Philadelphia’s general economic index fell in May to the weakest reading in 7 months, struggling in weak recovery. China trimmed its U.S. portfolio assets by USD9.2 billion in March, causing global demand for U.S. long-term treasuries contracting. Till date, China remains as biggest foreign holder of U.S. Treasuries at total USD1.145 trillion as of March record.

Japan’s economy shrank more than estimated in the first quarter after the March 11 earthquake and tsunami disaster. GDP contracted at annualized 3.7 percent in the 3 months through March, following a revised 3 percent drop in the previous quarter. Economists interpreted the economic falls into recession after shrinking for 2 consecutive months.

Eurozone spirals into sovereign debts. The IMF approved a package of EUR26 billion (USD36.8 billion) loan to Portugal as part of a joint bailout with the European Union in the latest effort to stem the region’s sovereign debt crisis. However, the original plan was endorsed with a EUR78 billion package that might still need additional funds to be injected in near future. On Friday, Greece’s credit rating was cut three levels by Fitch causing a plunge in Euro currency.

U.K. consumer confidence slipped to 43 in April from a revised 45 in March. Unemployment claims rose at their fastest rate in April since January 2010, after the number increased by 12,400 from March to 1.47 million. Britions are losing confidence in the economic recovery and household confidence has been sapped by the austerity cuts by the Government’s budget plan.

TECHNICAL FORECAST

USD/JPY moved in small range and closed at 81.64 for weekend. This week, we suspect the market may thread sideways and retreat to 80.20 as supports with no long-term trend in view. The topside resistance 82.20 should cap the bulls unless the buying interest breaks above here to start a new upward surge. There should be no market extension in the short-term ahead unless being led by fundamental factors.

EUR/USD climbed up on first 4 days of last week to above 1.4300 as we predicted. The market was unexpectedly battered on Friday after reacting to the news of Greece’s downgrade. By technical behavior, we expect the trend to recover to 14250 regions in early week. But breaking beneath 1.4120 may continue the selling pressure to 1.4050 supports that will leave the market open to more downside rooms.

GBP/USD did not move in certainty on Friday despite euro’s plunge. This week, market is opened to double possibility of breaking below 1.6100 to lower regions or above 1.6300 to regain its previous recovery. Trades are advised to trade cautiously and do not sit adverse to losses if the trend moves beyond the aforementioned 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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