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Dow Plunges as US Treasuries Rise

A guest post written by DAR Wong

Currency Market Observations – 27 January 2014

Fundamental Outlook

The US Treasuries rise as yields drop, causing Dow Jones Industrial Average (DJIA) to plunge 318 points. International Monetary Fund (IMF) predicts the growth in US and UK will accelerate in 2014 and lead global recovery. The US existing home sales rise while Eurozone manufacturing improves. The UK sees an improvement in unemployment decline and budget deficit narrows.

The US existing home sales rose in December for the first time in past 5 months as purchase was up 1 percent to a 4.87 million annual pace. Jobless claims gained 1,000 to 326,000 in the period ended 18 January, held at near 6-week low levels.

The US Treasuries rose steadily last week while 10-year bond yield closed lower at 2.72 percent on Friday, at 8-week low. The declines in emerging-markets equities spurred demand for safe haven in US fixed-income assets. However, Dow Jones benchmark closed at 318 points lower below 16,000 levels on Friday following rise in precious metals.

Bank of Japan (BOJ) Haruhiko Kuroda and policymakers held a 2-day meeting last week and pledged to expand the monetary base by an annual JPY60 – 70 trillion (USD671 billion) to support recovery. Instead of expecting Yen devaluation, the Japanese currency surged on Friday evening after a counter-balance in Dollar rise against European currencies.

The manufacturing in the Eurozone gained at 2-1/2 years’ highest record and lifted Euro currency. Initially, German manufacturing PMI was reported at 56.3 gains in December compared to prior month 54.3. Following this data, the overall manufacturing PMI in Euro 18 nations was averaged at 53.9 and above median forecast.

The German ZEW Economic sentiment that measures investors’ confidence for coming 6 months slid to 61.7 in January from a seven-year high of 62 in December. In a separate statement, European Central Bank (ECB) and global peers say they will wind down emergency dollar liquidity facilities in coming April that have helped lenders weather financial turbulence since 2009.

The UK CBI expectation of orders for January fell to minus 2 from 12 in December while the gauge of export orders dropped 27 points to minus 16. The unemployment declined to 7.1 percent in the 3 months through November from 7.4 percent in the quarter through October.

Another separate report states claimant-count rate fell to 3.7 percent in December from prior month 3.8 percent. British government’s budget deficit narrowed to GBP12.1 billion (USD20 billion) last month from GBP14.2 billion a year ago. The overall revenue rose 3 percent to a record and was driven up by stamp duty on property purchases and value-added tax on sales. Government spending fell 2.6 percent.

International Monetary Fund (IMF) has raised the forecast for global growth to 3.7 percent in 2014 while expecting the recovery in US and UK to expand. IMF officials urge advanced economic countries to maintain monetary accommodation to strengthen the recovery.

Technical Forecast

USD/JPY came down to 102.00 levels on Friday as reaction to rising US Treasuries. The market needs to stabilize on Monday, otherwise may continue downward trend if Treasuries stay firmer. The trend will be resisted at 103.00 regions but sliding below 102.00 levels will test lower supports at 101.00 areas.

EUR/USD has very strong recovery after mid last week from 1.3508 bottoms. This week, we reckon the market will move in consolidation from 1.3550 – 1.3750 regions while prone to bargain-hunting. Intra-day trades may be better to manage market whipsaws as fundamentals factors remain uncertain.

GBP/USD fell almost 200 pips on Friday as USD strengthened. Market fizzled out from 1.6668 tops and caught many long traders unexpected. Technically, we foresee the market will find face some buying interest at 1.6400 levels and 1.3300 levels in early coming week. The market might begin to thread in sideways digestion while capped below 1.6600 resistances.

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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