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Dow Jones Falls as Stimulus Trim Expected

A guest post written by DAR Wong

Currency Market Observations – 3 June 2013

Fundamental Outlook

The US Dow Jones market fell due to expectation of trim­ming stimulus by policymakers. Treasury yields rose as 10-year bonds have been declining amid a stabilised recovery in jobs and housing demands.

Meanwhile, the euro and pound reversed up in technical recovery after falling for weeks. German yields rose in tandem with the US yield curve while the UK saw a probable recovery this year after it jumped out from a triple-recession.

The US consumer confidence jumped to 76.2 in May from a revised 69 gain last month, mak­ing a record high in the past five years. Consumer spending fell 0.2 per cent in April while personal incomes were unchanged and prices dropped by the most in more than four years.

The US government debts slid 1.8 per cent in the month of May amid speculation that Federal Reserve might curtail its unprec­edented monetary stimulus pro­gram. The 10-year treasury yield has been rising to 2.3 per cent from previous congestion at 1.9 per cent.

On Saturday morning, China’s manufacturing data showed a gain in May as Purchasing Managers’ Index rose to 50.8 from 50.6 in April. The wrap up of data lifted the initiate senti­ment of slowdown in early May and might support Asia stocks in coming week.

Japan’s Prime Minister Shinzo Abe pledged 3.2 trillion yen (US$32 billion) to Africa for developing resources. He commented that China has far been pursuing the develop­ment in African countries and Japan seeked to vie for such influence and control the planta­tion and mining resources on the continent.

Last Tuesday, Hungary’s cen­tral bank lowered its key interest rate by another 25 basis points to 4.5 per cent. On the other hand, German government bonds de­clined for a second week while following the trend of US bonds.

Market showed concerns on the imminent trim in US stimulus programme as the 10-year treas­ury yield elevated. The German yield in 10-year bund also rose to a three-month high as fixed-income assets begin to unwind.

The euro hovered at 1.300 benchmarks while waiting for further fundamental news in coming week.

The central bank meeting this coming Thursday will play important part in deciding the euro’s trend as president Mario Draghi speaks.

The UK Nationwide Building Society reported the housing price index gained 0.4 per cent in May while consumer confidence recorded at minus 22 versus minus 27 in April. The pound re­covered against the dollar in four weeks in better data report.

Technical Forecast

USD/JPY is approaching the 100.00 benchmarks after diving down from recent tops at 103.73 levels. Technically, the market sentiment may settle at 99.50 – 100.00 regions before new bullish strength re-gathers for another up-run in near future. This week, reversing above 102.50 resistances will indicate a new uptrend!

EUR/USD reached 1.3061 highs last week and closed at 1.2995 for the weekend. The market is expected to be capped at 1.3050 – 1.3100 regions as we highlighted previously. This week, the resistance area should remain unchanged unless some new fundamental factors push the bulls across 1.3060 levels and skip higher for 1.3130 levels. Downside support stays at 1.2850 levels.

GBP/USD is moving on technical recovery with downside bottom rising at 1.5000 levels. This week, we expect the market trend to continue higher at 1.5280 – 1.5310 regions before profit-taking arises. Technical consolidation is expected to emerge for few weeks before new trend can be seen.

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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