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Dow Jones Decline in-lieu of December Rate Hike

A guest post written by DAR Wong

Currency Market Observations – 07 November 2016

Fundamental Outlook

The U.S. leaves interest rates unchanged ahead of U.S. election while payrolls grow steadily. Both Bank of Japan and Bank of England also remain status-quo in monetary policy. U.K. paces recovery in manufacturing and services while investors are watching closely for BREXIT execution that will influence Pound trend.

The U.S. personal spending for September rose 0.5 percent and highest in 8 months. The data from Institute of Supply Management reports its manufacturing index in October grew to 51.9 and matched forecast. Above 50.0 indicates expansion. Another report on this institute shows services index expanded at 54.8 in October and lower than previous month 57.1 reading.

The U.S. FED leaves interest rates unchanged as policymakers eye December for rate hike if inflation growth stays on track. Weekly jobless claims rose to highest in 3 months’ record at 265,000 for the week ended 29 October.

American non-farm payroll grew 161,000 in October after the previous month was revised higher to 191,000. Unemployment rate at 4.9 percent. Dow Jones benchmarks closed below 18,000 levels for the first time in 4 months.

China reports the manufacturing index at 51.2 in October. Another private report by Caixin manufacturing also pointed at same index reading.

Japan’s housing starts gained 10.0 percent in September from a year ago and best growth since June 2015. Retail sales slumped 1.7 percent on year basis but better than revised 2.2 percent contraction in previous annualized month.

Bank of Japan remains interest rate unchanged at minus 0.1 percent for central bank deposit and pushes the target for reaching 2.0 percent inflation backward to March 2018. Policymakers will halt printing new monies but maintain annual purchase of asset at JPY80 trillion for government bonds.

German unemployment change was down by 13,000 in September while final manufacturing index expands at 55.0 in October, strongest since January 2014.

Eurozone’s flash estimate on consumer prices gained 0.5 percent in October while core estimate rises 0.8 percent, both matching the forecast. Another report on producer prices gained 0.1 percent in September on monthly basis and rose from minus 0.2 percent in August.

Markit reports the final services index expanded to 52.8 throughout the 19 countries and maintaining above 50.0 benchmark. Bank of England keeps official rate unchanged at 0.25 percent while maintaining GBP435 billion asset purchase program on annual basis. The U.K. government rules that BREXIT policy needs the parliament to be approved and lifts the Pound into recovery.

Technical Forecast

USD/JPY traded in lower prices again as precious metal recovered last week. This week, we reckon the market will be resisted at 103.50 – 104.00 regions and prone to fall towards Friday. Target is set at 100.00 benchmarks in near-term as investors are losing confidence in Abenomics policy.

EUR/USD has exhibited strength of recovery and may climb further this week. Technically, we forecast the support will lie at 1.1050 and capped below 1.1200 areas. However, piercing above 1.1200 resistances will trigger a new spike and aim at reaching 1.1350 targets.

GBP/USD has begun to recover from months of bearish sentiment. This week, the support will ambush at 1.2450 regions in case of small correction. Short-covering might spike the prices to high regions around 1.2800 levels due to strong momentum built up from last week.

Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

DAR Wong is a registered fund manager in Singapore with 26 years of global trading experiences. You may reach him at dar@pwforex.com

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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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