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Currency Market Observations – 26 Sep 2011

A guest post written by DAR Wong

The Euro contagious debt crisis melts global stocks

Fundamental Outlook

The global equities plunge due to contagion of euro debt crisis spreading from Greece. Analysts predict the imminent emergence of global crisis if the Eurozone does not resolve the deficits in shortest time. The U.S. economy shows persistent fatigue while President Obama proposes another tax increment by USD1.5 trillion over a decade.

The U.S. housing starts dropped 5 percent in August to a 3-month low at 571,000 annual rates. The existing home sales rose 7.7 percent from July to 5-month high amid falling property prices. Another separate report showed by U.S. Conference Board’s gauge of near-term outlook climbed 0.3 percent after a 0.6 percent gain in July. Initial jobless claims decreased 9,000 in the week ended 17 September to 423,000.

Federal Reserve has announced the replacement of USD400 billion in short-term debts with longer-term Treasuries while aiming to reduce borrowing costs and extend repayment to avoid default risks.

German investor confidence fell to the lowest in more than 2-1/2 years in September. ZEW Center for European Economic Research in Mannheim said its index declined to minus 43.3 from minus 37.6 in August.

The Standard & Poor’s cut Italy’s credit rating by lowering to A from A+, with a negative outlook. Greece is at the edge of the biggest sovereign default with EUR353 billion (USD483 billion) debt to be matured before year-end. Global stocks faced panic selling last week and fear of contagion may spread to U.S. for causing further slump.

In U.K. economy, central bank policymakers said they will likely increase bond purchase to loosen monetary conditions and bolster recovery if recession persists.

Last week, the MSCI All-Country World Index of 45 nations plunged into bear market for the first time in more than 2 years, after the worsening European debt crisis and widening U.S. recession erased more than USD10 trillion from equities since May.

Technical Forecast

USD/JPY is still swinging around 76.50 regions with support resting at 76.00 benchmarks. We reckon good opportunity to establish new long trades in aforementioned regions with tight controlled risk factors. The potential of seeing 78.00 targets is still open to high possibility since the trend is in consistent sideways. Abandon your long-view if the market breaks and settles beneath 76.00 levels.

EUR/USD made low at 1.3384 that was seen in January this year but closed at 1.3470 for the weekend. We expect the trend to start consolidating in coming week once the market settles above 1.3500 benchmarks. Our target lies at 1.3950 if the trend goes sideways while digesting last week’s bears. Abandon your long-view if the trend penetrates beneath 1.3380!

GBP/USD fell off 1.5490 on last 30 minutes on Friday’s closing session and closed at 1.5359. We believe it is good opportunity to establish long trades on early Monday session while capping your loss at 1.5300. The market has potential to reverse upwards if this support can remain intact. We have identified the first target price at 1.5680 levels on technical recovery.

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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