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ECB Cuts Rate While UK Increases Asset Purchase

A guest post written by DAR Wong

Currency Market Observations – 9 July 2012

Fundamental Outlook

The US employers add fewer jobs again amid murky economy. European Central Bank (ECB) and China’s central bank both cut rate to contain slowdown in economy. UK policymakers expands asset purchase program by another GBP50 billion amid the threats of recession.

The US Institute for Supply Management’s manufacturing index fell to 49.7 in June, worse than forecast and down from prior month 53.5. Another report on services index also slid to 52.1 from 53.7 in May. However, the Commerce Department reported factory orders gained 0.7 percent in May which did not gather confidence over other slopping June data.

American jobless claims on weekly basis slid 14,000 to 374,000 in a report compiled for June 30. The monthly essential payroll figures for June created 80,000 jobs in employment but below median forecast, after followed a 77,000 increase in May. Unemployment rate stayed at 8.2 percent.

In Eurozone, jobless rate among 17 nations rose to 11.1 percent, at highest record since 1995. In July, the sanctions on Iran imposed by European Union entered into full force while adding pressure on crude prices to rise and also to halt Iran in its nuclear- enrichment program.

Last Thursday, European Central Bank (ECB) lowered the benchmark rate and overnight deposit rate by 25 basis points to 0.75 percent and zero respectively. In UK, Monetary Policy Committee (MPC) raised its asset-purchase target by GBP50 billion (USD78 billion) to GBP375 billion while targeting to complete in 4 months.

The UK mortgage approvals fell in May with 51,098 granted loans compared with 51,627 the previous month. The index for construction dropped to 48.2 from 54.4 in May. Another separate report on producer prices slid 0.4 percent from May while core prices fell 0.2 percent in June following dimmed outlook in Britain. 

Following the Euro rate cut, the People’s Bank of China reduced its 1-year lending rate by 31 basis points to 6 percent late and the 1-year deposit rate was slashed 25 basis points to 3 percent. The monetary authority pumped CNY225 billion (USD35.3 billion) into the financial system.

Technical Forecast

USD/JPY began to slide after euro rate cut as contracting euro trend damages receding yen against greenback. Technically, the market is capped at 80.00 benchmarks now but may test 78.80 supports in coming week. We reckon the range will trade from 78.50 – 80.00 regions while prone to weakness from topside selling pressures.

EUR/USD closed at 1.2286 bottoms on Friday with pessimism in market on euro debt crisis and poor US jobs data. This week, we forecast the resistance will emerge at 1.2430 levels while a possibility of bearish trend could drive down to 1.2150 targets as outlined in last month’s report. In this case, the bears are returning to euro trend.

GBP/USD behaves similar to euro sentiment with smaller probability of rebounding but larger room for downside in coming week. From technical outlook, we reckon the resistance will emerge at 1.5600 regions while the trend might aim lower at 1.5350 – 1.5400 areas. The market sentiment may dawdle at the bottom prices as indicated above due to weak confidence among investors.

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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