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Currency Market Observations – 25 April, 2011

A guest post written by DAR Wong

S&P Downgrades Outlook for US Credit Ratings

FUNDAMENTAL OUTLOOK

It was a short week with little trade actions before Good Friday. The U.S. was downgraded in outlook ratings that reacted with rebukes by the Government officials. Housing markets have small rebound in U.S. while there are not many fundamentals news that move the markets. Eurozone remains quiet amid more speculations of rate hike and credit tightening that pushed the euros to new highs last week.

The rating agency Standard & Poor said American Government might lose its AAA credit rating if the policymakers are unable to resolve huge national debts and reverse down on budget deficits by 2013. Housing starts broke grounds in March with 549,000 houses at an annual pace, up 7.2 percent from the prior month and exceeding the 520,000 median forecast. Another separate report on existing home sales increased 3.7 percent in March to a 5.1 million annual rate, exceeding median forecast. Market economists believed the rebound came from bargain hunting of low property prices.

The U.S. jobless claims sank 13,000 to 403,000 in the week ended April 16, indicating uneven recovery in job markets. The index of U.S. leading indicators, reflecting growth in coming 1-2 quarter, rose 0.4 percent after a revised 1 percent gain in February that was larger than previously estimated.

Japan’s exports fell more than forecast due to damages of 311 Earthquake. Overseas shipment declined 2.2 percent in March from a year earlier, the first drop since November 2009. Prime Minister Naoto Kan proposed a JPY4 trillion (USD49 billion) extra budget to rebuild devastated areas after Earthquake. Tokyo Electric Company said they will probably take another 6 months to complete the cleaning of radiation leakage while the rise of its danger security levels has caused much alarms to the Japan financial markets.

ECB Governing Council members signaled they will keep tightening monetary policy this year to curb inflation as the economy recovers. In the second largest economy, U.K. retail sales unexpectedly rose in March by gaining 0.2 percent from February. The Nationwide Building Society index of consumer confidence climbed to 44 in March from to a record low of 39 the previous month. Market analysts expect the Bank of England to tighten rates towards mid-year.

TECHNICAL FORECAST

USD/JPY settled on the low side 81.85 for weekend with small range last week. We reckon the market will probably make a technical correction though the supports lie at 80.50 regions. We recommend traders to enter from the extreme prices while topside resistance is seen at 84.00 levels. Avoid swings in the mid-range prices as they might be hard to handle.

EUR/USD spiked to new year-high 1.4648 due to news of next rate hike and also big gain in Gold prices. From our technical study, this bullish sentiment may attempt 1.4700 regions in coming week as pincer-top formation before it slides down. After that, the trend is more likely to form technical correction to 1.4250 – 1.4300 regions before we could evaluate further.

GBP/USD is also toppish like euros. However, we expect to market to make small marginal top in early week around 1.6600 regions before it reverses down. The bears will be confirmed once the selling crosses below 1.6426 levels. Tighten your selling losses if the market penetrates above 1.6650 levels.

 

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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