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Dow Recovers on Russian Military Retreat

A guest post written by DAR Wong

Currency Market Observations – 10 August 2014

Fundamental Outlook

The US economy shows better sentiment in services industry while trade balance improves. Dow Jones recovers from huge intra-week losses after gaining 185 points on Friday. China reports better than expected trade surplus while UK narrows in trade gap. However, housing recovery continues in strong sentiment for UK property markets.

The US Institute for Supply Management’s non-manufacturing index increased to 58.7 in July and exceeded the highest estimate. Factory orders rose 1.1 percent in June after revised figure showed minus 0.6 percent in previous month.

The US trade gap shrank 7 percent to USD41.5 billion in June, the smallest since January, from previous month USD44.7 billion. Trade balance was narrowed down by being less dependent on energy imports. American jobless claims were reported at 289,000 for the week ended 2 Aug, better than expected.

Another separate report on American wholesale inventories were down 0.3 percent in June, in line with revised figure in prior month and lower than expectation. Overall market sentiment was firmed throughout last week due to better performing economic data.

On Friday morning, US President Obama authorized air strikes in Iraq against the ISIS militant group and bludgeoned the Asian equities. However, Dow Jones benchmarks recovered at 185 points gains before weekend as Ukraine tension eased after Russian troops withdrew.

China’s trade surplus surged to a record in July as export growth unexpectedly accelerated and imports fell. Exports increased 14.5 percent from a year ago while imports dropped 1.6 percent, leaving a trade surplus of USD47.3 billion, higher than all estimates.

Bank of Japan reiterates maintenance in record stimulus while keeping the monetary base increase at an annual pace of JPY60 trillion to JPY70 trillion (USD687 billion). Ye strengthen last week to 102.00 regions and closed for weekend.

In euro area, retail sales grew 0.4 percent in June and in line with median forecast. On the other hand, Italy unexpectedly returns to recession and German factory orders drops the most since 2011. The economy shrank 0.2 percent in Italy for second quarter after contracting 0.1 percent in the previous 3 months. German orders slid 3.2 percent in June from May.

UK industrial production increased 0.3 percent in June after declined 0.6 percent in May. Growth was revised lower at 0.3 percent in second quarter after initial estimate stated 0.4 percent growth last month. The housing report filed by Halifax Ltd says property prices rose the fastest in almost 8 years as the quarterly growth through July climbed 1.4 percent gains from prior 0.4 percent rise.

Another housing price report filed by UK Acadata also shows that British housing prices rose 0.6 percent in July and were up 9.9 percent compared with a year earlier, pushing the average price to GBP270,636 (USD456,000).

UK trade deficit widened in June after exports dropped. Overseas shipment fell 1.6 percent from May and imports declined 0.4 percent, resulting trade gap increased to GBP9.4 billion (USD15.8 billion) from GBP9.2 billion. A separate report by ONS says construction output rose 1.2 percent in June from May.

Technical Forecast

USD/JPY fell back to 102.00 regions before weekend after market topped 103.00 levels. The trend still consolidates from 101.00 – 103.00 areas without signs of breaking. Traders may trade cautious inside this range while observing our risk management upon breakouts.

EUR/USD has shown strong support at 1.4330 bottoms after the market stood firmly on this base price. This week, we reckon the trend will trade higher upon technical recovery while recovering to 1.3550 regions is highly possible. However, beware of the prices falling beneath 1.4330 supports as this unexpected plunge might continue the bear trend.

GBP/USD has abandoned the bullish sentiment since 2 weeks ago after it fell below 1.7000 levels. This week, the market might continue its southern trend towards 1.6650 – 1.6675 bottoms before bargain-hunting emerges. Topside resistances will act on 1.6800 regions in case of upward technical retracement.

Dar Wong

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

DAR Wong is an approved fund manager in Singapore with 25 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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