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Currency Market Observations – 8 Aug 2011

A guest post written by DAR Wong

The U.S. spins off declines in global stocks

Fundamental Outlook

The U.S. stock markets declined heavily last week. Jobless rate was down with small improvement in July. Japan intervened in Yen rising and reversed USD/JPY market upwards. The Bank of England (BOE) and European Central Bank (ECB) may need to increase bond purchase program if economies slow down towards year–end.

The U.S. consumer spending declined 0.2 percent in June after a 0.1 percent gain the prior month. The Institute for Supply Management’s index of non- manufacturing businesses slid to 52.7 from 53.3 in June. Factory index from the same institution showed a slump to 50.9, the lowest since July 2009, from 55.3 a month earlier.

Jobless benefits decreased 1,000 in the week ended July 30 to 400,000, the fewest in almost four months. The U.S. non-farm payroll rose by 117,000 workers after a 46,000 increase in June. Jobless rate dropped to 9.1 percent.

Last Thursday, short-term Government’s bills rose in sudden demands as the world’s safest haven amid global slow economy and debt crisis deepening in Eurozone. The treasury yields went below zero percent and caused a heavy plunge of DJIA by more than 500 points. Gold and crude prices dropped rapidly from flight to quality into short-term bonds.

The U.S. House of Representatives approved legislation to raise the U.S. debt limit by at least USD2.1 trillion and cut federal spending by USD2.4 trillion in coming decade. No immediate Quantitative Easing will be expected which reversed the dollar into slight bullish consolidation.

Japan intervened in the foreign-exchange market in middle last week and hammered the rising Yen against greenback to prevent further damages to export. The USD/JPY market reversed up from recent low beneath 77.00 levels to above 80.00 regions within one day.

European leaders hunted for solutions to the debt crisis while they may resort to more bonds buying program and holding interest rates until year-end. Germany industrial production declined 1.1 percent from May, when it rose a revised 0.9 percent. The unexpected decline in June may be due to worsening concerns of debt crisis.

According to Lloyds Banking Group Plc (LLOY), U.K. housing prices rose 0.3 percent in July from the prior month. From a year earlier, prices fell 2.6 percent to an average GBP163,981 (USD267,000). The Bank of England held its benchmark interest rate at a 0.5 percent record low last week despite rising inflation rate. The economy grew just 0.2 percent in the second quarter and policymakers are planning to prevent decline in slow down.

Technical Forecast

USD/JPY jumped from 77.00 regions after Japan Government intervened in selling off Yen. The market surged to above 80.00 levels briefly and retracted into hovering around 78.50 areas. We foresee the trend will be well supported at 78.00 and regain the bullish strength in coming week. We still remain the topside targets 80.50 – 91.00 levels as strong selling prices while breaking beneath 78.00 needs to abandon your long views.

EUR/USD had a big swing last week from 1.4050 – 1.4450 regions while closed at 1.4380 regions ion Friday session. We reckon strong resistance will emerge at 14340 – 1.4370 regions while the trend is still prone bias to selling down. This week supports lie at S1 – 1.4140 and S2 – 1.4050 regions despite we favor bearish sentiment in lieu of negative factors from Eurozone debt.

GBP/USD pulled up and closed at just beneath 1.6400 resistances n Friday session. We expect the trend to turn down in coming week and revert back to selling sentiments. The market has very strong resistances at 1.6440 – 1.6470 regions while we expect trend bears to re-visit the bottom supports at 1.6230 levels. Abandon your short-view if the market penetrates above 1.6470 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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