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DJIA and Bond Decline as Stimulus May Wane

A guest post written by DAR Wong

Currency Market Observations – 19 August 2013

Fundamental Outlook

The U.S. claims for unemployment benefits reduce while inflation rate increases again. Tapering of stimulus rekindles in markets as traders sell off stocks and bonds. Yield continues to float higher as evident that has triggered shaving of U.S. treasuries by China. Eurozone and Britain both indicate recovery in exports and retail demand.

The U.S. retail sale rose for a fourth month at 0.2 percent in July, after it gained 0.6 percent in previous month. Producer prices remained at par and below median forecast, after followed 0.8 percent gain in June. Core prices rose 0.1 percent last month. President of FED of Atlanta Dennis Lockhart, who has supported the monthly USD85 billion stimuli in bond purchases, hints tapering may begin soon.

Weekly jobless claims among American workers slid 15,000 to 320,000 as of 10 August, clocking lowest record since October 2007. Another report on consumer prices increased 0.2 percent after making 0.5 percent gain in June. However, industrial production for July was unchanged after rising 0.2 percent in prior month.

The National Association of Home Builders/Wells Fargo index of builder confidence climbed to 59 from a revised 56 in July, highest since 2005 as demands for new homes rise. Housing starts climbed 5.9 percent to an 896,000 annualized rate from a revised 846,000 pace in June that was higher than previously reported.

DJIA and bonds declined last week as fear of tapering stimulus grew due to improving job data. Bond yield rose to 2.80 percent as of Friday close.

According to U.S. Treasury Department, China has begun to reduce the holdings in U.S. treasuries by shaving USD21.5 billion in June (estimate 1.7 percent) to USD1.276 trillion. Recent bond prices plunge amid rising yield and wide speculation of cutting back in bond purchases put investors on the alert mode.

The Eurozone reports its growth in GDP at 0.3 percent in the Q2 season after 0.3 percent contraction in the previous quarter. Exports increased for the first time in three months while being led by a rebound in Germany. Overseas shipment from the 17-nations rose a seasonally adjusted 3 percent in June from May, when they dropped 2.6 percent. Another report shows inflation rate among the 17 nations remained at 1.6 percent in July.

The U.K. unemployment remained at 7.8 percent in Q2 data amid signs of recovery in labor markets and jobs creation. London-based RICS says U.K. housing index rose to 36 from 21 in June, the highest reading since November 2006.

Another separate report indicates British retail sales rose 1.1 percent in July. Pound rose to new intra-month high record as it surpassed 1.5600 levels on Friday.

Technical Forecast

USD/JPY is trading inside downward channel in day-chart. The market is prone to fall further in coming week if the trend is capped under 98.50 resistances. We reckon the support will be tested at 95.00 areas before some bargain-hunting will emerge.

EUR/USD is still trading under 1.3400 resistances as it reversed up from 1.3203 bottoms last week. Technically, we reckon that the market will continue to consolidate inside 1.3200 – 1.3400 ranges in coming week. Breaking above 1.3400 levels needs to abandon your short-view as this could go higher due to fundamental strength. However, moving sideways as stated in first hypothesis indicate prone bias to eventual weakness.

GBP/USD has been trading very close to our prediction last week from 1.5420 -1.5657 ranges. The market is bullish and might continue to climb higher in coming week to 1.5750 regions. The support will be acting strong at 1.5420 – 1.5450 areas from now. Breaking above 1.5750 resistances may test 1.5850 targets.

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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