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Currency Market Observations – 9 May 2011

A guest post written by DAR Wong

European Currencies Decline Amid USD Rebound

FUNDAMENTAL OUTLOOK

The US Treasury Secretary is pressing the Congress to increase the debt limits before 16 May while investors have started to liquidate commodities ahead of unclear policy in US dollar. Although more jobs were added in April, both US manufacturing and services index have contracted. European Central Bank held the interest rate unchanged at 1.25 percent but President Trichet expressed there may not be rate tightening in July.

The US Institute for Supply Managements factory index fell to 60.4 last month from 61.2 in March, but still stayed above 50 benchmarks for the fourth consecutive month. The other services index by the same institution was reported with decline to 52.8 and worse than median forecast. Treasury Secretary Timothy F. Geithner said can keep borrowing until August if the Congress passes on the approval.

American initial jobless claims rose by 43,000 to 474,000 in the week ended April 30. Workers’ productivity dropped when labor output per hour increased at a 1.6 percent annual rate in Q1, after a 2.9 percent gain in the prior 3 months. The monthly payroll figures added 244,000 jobs in April after a revised 221,000 gain the prior month. Jobless rate was at 9 percent.

Japans parliament passed a JPY4 trillion (USD49 billion) budget for rebuilding after the March 11 earthquake. The package will be financed using JPY2.5 trillion from pension funds. The Yen rebound against greenback after reaching 80.00 and slid on speculation of probable intervention.

The European manufacturing index in the 17-nation Euro-area rose to 58 from 57.5 in March, indicating modest recovery. European Central Bank President Jean- Claude Trichet said policymakers will remain sensitive on inflation matter after holding interest rates at 1.25 percent. As largest economy in Eurozone, German industrial production rose for a third month in March by 0.7 percent as construction surged.

A UK manufacturing index fell to a 7-month low in April amid declining consumer confidence and falling construction. Markit Economics and the Chartered Institute of Purchasing and Supply fell to 54.6 from a revised 56.7 in March. In the housing markets, Hometrack Ltd reported the average cost of a home was unchanged from March at GBP153,100 pounds (USD255,000), showing the halt in April decline after falling for 10 months.

TECHNICAL FORECAST

USD/JPY bounced up quickly after dipping beneath 80.00 on last Thursday. Market investors suspect Japans Government may intervene in currency market to prevent exports decline after Nato Kan announced JPY4 trillion stimulus. In our opinion, we reckon the market may consolidate in the range 79.50 – 82.50 for 1-2 weeks before clearer sign will be revealed.

EUR/USD had a bad fall after USDX recovered after mid last week. We foresee the support will emerge at 1.4200 regions with much buying interest. This week, we should see the bottoming out temporarily and the trend will begin to consolidate back to 1.4550 regions. Be patient and do not sit on long losses once the market breaks below 1.4150 benchmarks.

GBP/USD turned southwards just like we predicted last week. The market is beginning to hunt for support around 1.6350 regions while some buying interest is seen. We expect some consolidation will occur and lift the trend back to 1.6600 regions in near future. Both euro and pound carry similar trend outlook for weighing against greenback.

 

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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