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Currency Market Observations – 30 May 2011

A guest post written by DAR Wong

Eurozone Poises in Debt Crisis While US Struggles for Recovery

FUNDAMENTAL OUTLOOK

The US economy worsens with most data still declining amid housing slump persists. European sovereign debts deepen with central bank officials pulling in funds again for rescue. Japan remains in contraction after the 311 earthquake with expectation of further shrinking in Q2. Britons reverse upward in consumer confidence but may not be strong enough to induce imminent rate hike.

Orders for US durable goods slipped 3.6 percent in April at biggest record since October and contrast to 4.4 percent surge in March. Home prices dropped 2.5 percent in the Q1 from previous 3-months against median forecast. Compared to a year ago, the data slid 5.5 percent due to rising foreclosure.

The US consumer spending in April rose at 2.2 percent annual pace in Q1, below median forecast. On monthly basis, spending rose 0.4 percent from March while pending sales of existing homes dropped 12 percent in April. Both data showed struggling recovery amid fatigue recession.

Japan’s trade deficit was JPY463.7 billion (USD5.7 billion) in April while exports fell 12.5 percent from a year earlier and imports rose 8.9 percent. This is the first trade deficit in 31 years and Government is planning to expand lending programs to crippled factory production after the economy has been severely damaged by the nation’s 311 disasters.

Japan’s consumer prices rose in Japan for the first time since 2008 last month, due to shortage of goods after earthquake disaster. Another report showed retail sales fell 4.8 percent from a year earlier in April and underscores the forecast for Gross Domestic Product in Q2 ending June may shrink again.

European confidence in the economic outlook weakened for a third straight month in May. An index of executive and consumer sentiment slipped to 105.5 from 106.1 in April. Other reports included the sentiment index for manufacturers fell to 3.9 in May from 5.6 in the previous month, an indicator of services confidence slipped to 9.2 from 10.4, while a measure of consumer confidence rose to minus 9.8 from minus 11.6 in April.

UK retail sales fell in May by 18 percentage points from prior month’s 21 points. Other reports showed consumer confidence recovered in May but unemployment claims rose at their fastest rate in 15 months. The index of consumer sentiment rose 10 points from April to minus 21.

Another separate report from Nationwide Building Society showed house prices rose more than median forecast in May when the average cost of a home increased 0.3 percent to GBP167,208 (USD274,840). However, BOE officials cited an interest rate increase this month could dampen the growth as unemployment rate still persists.

TECHNICAL FORECAST

USD/JPY has come close to our predicted support at 80.20 levels. We reckon the market may fall to these support regions in coming week. The stagnant economy has damaged investors’ confidence and the uprising yen can only be terminated by another huge stimulus injection. We have identified the next support at 79.50 and topside resistance should be resilient at 81.50 levels.

EUR/USD has started technical correction from the recent bottom 1.3969. The market will probably consolidate in early week with some buying interests at 1.4200. The topside target may reach 1.4450 regions to complete the whole technical correction. Trade cautiously as the market is pretty sensitive to fundamental news now.

GBP/USD has temporary reached the 1.6500 resistances on Friday. We suspect the market may do a consolidation between 1.6320 – 1.6520 regions in coming week before making a new direction. The market is subject to fundamental news of economic performance and interest rate policy that will initiate the new trend soon!

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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