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Currency Market Observations – 4 July 2011

A guest post written by DAR Wong

The US data show recovery while Greece wins bailout

Fundamental Outlook

The US economic data was positive and signaled recovery last week. Japan’s quarterly tankan report was negative due to after-effects from March crisis. European is still in weak recovery while housing slump persists in US and attention has been focused in Greek bailout.

The US consumer spending unexpectedly stagnated in May due to high unemployment and stoking inflation. On yearly basis, consumer spending increased 2.5 percent from May 2010. Another separate report on pending existing home sales rose 8.2 percent in May and much above 3 percent in median forecast, after followed a revised 11 percent drop in the prior month.

The US Institute for Supply Management-Chicago Inc.’s business index climbed to 61.1 from 56.6 in May while its factory index rose to 55.3 in June, the first gain in four months, from prior month 53.5. Jobless claims dropped by 1,000 to 428,000 in the week ended 25 June, in-line with median forecast.

Japan’s retail sales slid 1.3 percent in May from a year earlier while affected by many businesses have wound up after the march crisis. The core consumer prices rose 0.6 percent from a year ago in May 2010, slightly above 0.5 percent forecast. The Government is considering about JPY230 billion (USD2.8 billion) as financial aid to Tokyo Electric Power Co. for radiation monitoring project.

The Japan factory output increased 5.7 percent in May, making biggest gain since 1953, due to recovery operations in car making industry. The quarterly Tankan report fell to minus 9 in June from 6 in March and indicated negative growth of large manufacturers. Unemployment unexpectedly fell to 4.5 percent as more people gave up on looking for work in disaster areas.

Euros fell amid protests in Athens of Greece by reacting to the austerity budget cut by Government worth EUR78 billion (USD112 billion). This cut was implemented in order to win more rescue package from EU and IMF.

US housing prices fell for a second month in June with no sign of recovery. Hometrack Ltd reported the average cost of a home slipped 0.1 percent from May and down 3.9 percent from a year ago. The consumer sentiment reported by GfK NOP Ltd slipped 4 points to minus 25 from May, when it increased 10 points.

Technical Forecast

USD/JPY is currently well supported at 80.00 levels. If this support remains intact, we reckon the market will begin to test upside around 82.50 regions in near future. The market is still caught in sideways consolidation while waiting for new fundamental injections to trigger new trend.

EUR/USD has broken the last resistance at 1.4450 and reached 1.4552 highs. By technical studies, we expect the market to turn down form here if the existing top 1.4552 can remain intact. Further positive news of Greek bailout or rate hike may elevate the trend to 1.4650 regions though we favor technical reversal down. If trend moves in our favor this week, we expect the bears to drive down to 1.4300 regions.

GBP/USD has reversed from recent low 1.5987. The market may continue this consolidation for this week by technical behavior. We reckon breaking above 1.6120 may elevate to 1.6250 regions before the recovery loses steam. The existing supports at 1.5910 regions should hold well for the time being, otherwise violation of it will drive down to 1.5700 regions.

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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