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Dow Jones Top Double-High at 14,550 Levels

A guest post written by DAR Wong

Currency Market Observations – 22 July 2013

Fundamental Outlook

The U.S. retail sales and consumer prices both gain in confidence. Bernanke testifies the impossibility of withdrawal in financial stimulus too soon but emphasizes the need to further assess the economy. Dow Jones markets rise to test double-top at 14,550 regions and leads Asia equities firmer. The U.K. economy shows improvement with falling jobless claims amid rising sales.

The U.S. retail sales for June rose 0.4 percent but less than median forecast. Core retail sales were on par on monthly basis after rising 0.3 percent in May. The U.S. consumer price rose 0.5 percent after energy prices gained. Core prices were up 0.2 percent and remained same as May.

The U.S. housing starts fell in June. Data shows 836,000 houses broke grounds at an annualized rate and down 9.9 percent from a revised 928,000 pace in May. The leading indicators remained unchanged in June and weaker than forecast, showing waning confidence for the economic outlook for coming 6 months. Weekly jobless claims dropped 24,000 to 334,000 as it ended July 13 and better than expected.

Bernanke says he does not foresee any credit tightening in near future, hinting the winding down of stimulus is impossible when economy is just begun to recover. He adds that the climb in market interest rates could be attributed to improved economic data and investor reactions to the Fed’s communications.

Last week, China reported its second quarter growth rate at 7.5 percent through June, compared to 7.7 percent in previous 3-month ended March. Analysts expect the slowdown is expected to follow through after manufacturing data contracted for past 2 months. The sentiment in Asia markets was initially sluggish until Bernanke gave his testimony after mid-week.

The ZEW index of German investor confidence fell to 36.3 in July from previous month 38.5. Data is below expectation and persists in slowdown amid largest economy in Eurozone. Another separate report shows Euro-region exports dropped 2.3 percent in May from the previous month. Despite this, the Euro currency has not fallen too rapidly due to support from weakening Dollar after Bernanke’s remarks.

The U.K. jobless claims fell 21,200 from May to 1.48 million, making the biggest drop since June 2010. The Monetary Policy Committee voted 9-0 to keep the target of its bond-purchase program at GBP375 Billion (USD566 Billion). Policymakers also voted to keep the key interest rate at a record-low 0.5 percent without adjustment.

The U.K. retail sales rose for a second month in June as retail sales including fuel rose 0.2 percent from May, when they surged 2.1 percent. The National Institute of Economic and Social Research estimates Gross Domestic Product (GDP) rose 0.6 percent in the quarter through June.

Technical Forecast

USD/JPY closed slightly above 100.00 levels on Friday on some short-coverings. Technically, we reckon the market trend may travel both directions in coming week while depending on fundamentals. The sentiment might be entrapped inside 98.50 – 101.50 ranges while breaking away from either of these extremes will initiate new trend. We suggest pay more attention to Dollar news and U.S. data since Japan will probably be dormant this week.

EUR/USD has been prone to bullish sentiment but still moving inside a tight consolidation. The support lies at 1.3050 levels while resistance presses at 1.3200 regions. This week, the technical pattern suggests trend may draw down but observe the fundamental changes in case of some push up news. We prefer to wait for breakout in either direction before planning a new entry strategy with proper risk management.

GBP/USD closed at 1.5268 for the weekend after remaining firm for whole week. Better economic data have been supporting the market but we reckon the trend may be facing immediate resistance at 1.5300 – 1.5320 regions on Monday. This has been predicted almost correct by us in last week’s forecast. Moving forward, clearing above this resistance will skip higher to 1.5450 areas while failure to do that will likely reverse down to test 1.5050 supports.

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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