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The Euro Debt Crisis Intensifies Again

A guest post written by DAR Wong

Currency Market Observations – 14 May 2012

Fundamental Outlook

The US economy remains flat while Europe resurges in crisis tension. Japan pledges to increase the currency liquidity should financial turmoil returns. The UK economy slumps in fatigue with retail sales and construction both sinking. Bank of England (BOE) stands on alert to add stimulus for fighting the slowdown in case the crisis spreads.

The US wholesale inventories rose 0.3 percent in March after followed 0.9 percent gain in prior month. Jobless claims dropped 1,000 filings to 367,000 in the week ended 5 May. Employment remains unsteady with consumer spending contracting.

The trade deficit widened more than forecast in March when trade gap grew 14 percent to USD51.8 billion. Imports jumped for foreign hardware and automobiles. Another report on producer price index slid 0.2 percent in April after no change in March, led by lower oil prices.

The German factory orders, after adjusted for seasonal swings and inflation, jumped 2.2 percent from February. Another separate report on German industrial output gained 2.8 percent compared to 0.3 percent drop in February. As largest economy in Eurozone, Germany could be maintaining the strength to steer away from recession.

A strong data on German exports in March jumped 0.9 percent after seasonally adjusted, following 1.5 percent gain previously and making the third month’s straight growth. However, the Eurozone was in debt woes again last week when Greece was struggling to form a new government and Spain took control of its fourth largest bank.

Till now, European Central Bank (ECB) has injected more than EUR1 trillion (USD1.3 trillion) to loosen credits with cheap borrowings. But the major lender – Germany is forming top banking supervisors to examine the compliance lest the loose funding system may eventually create “a new bubble”.

In UK, the housing price index declined to minus 19 from minus 11 in March. Building output plunged 4.8 percent in Q1 and worse than initial estimate. Another two reports from British Retail Consortium said retail price slumped 3.3 percent in April from a year earlier while the shop-price inflation slowed to 1.3 percent.

BOE Governor Mervyn King is set to add more stimulus if the euro-crisis threatens the recovery. The announcement will be made next week that may support the pound’s value. Till date, the bonds purchase program holds at GBP325 billion with benchmark rates staying at 0.5 percent.

Technical Forecast

USD/JPY has been supported at 79.50 – 80.00 regions while it consolidated. This week, we expect the trend to grow stronger and return back to 81.00 levels if the bulls can clear above 80.00 benchmarks. In addition to the commitment pledged by Japan’s policymakers to increase currency assets if needed, there will be good opportunity to see an uptrend soon. Abandon your long-view if the market sinks beneath 79.00 supports!

EUR/USD was down last week due to weak sentiment in both fundamental and technical strength. The market is resisted now at R1 – 1.3000 and R2 – 1.3060 but the downside room will be opened to 1.2800 regions if the bears continue in coming week. Beware of fundamental changes in policy-makings that may reverse the sentiment once the prices pierce above 1.3060 levels.

GBP/USD closed at the week’s low 1.6060 on Friday. This week, we foresee the support will emerge at 1.6000 benchmarks and the bulls will probably make technical recovery back to 1.6200 regions. Plan your long entry in early week but abandon your position if the market sinks beneath 1.6000 levels!

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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