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Euro Interest Rate May be Shaved This Week

A guest post written by DAR Wong

Currency Market Observations – 2 June 2014

Fundamental Outlook

The US reveals home demand still in weakness despite sentiment outlook for coming 6 months grows. Japan surprises market with rising core consumer prices at highest record for past 23 years. The meeting for European Central Bank (ECB) in coming week may see drastic action by President Draghi.

The US durable goods data rose 0.8 percent in April after a revised advance of 3.6 percent gains in prior month. The Conference Board’s gauge of consumer sentiment rose to 80.4 after 78.5 in April. Weekly jobless claims declined 27,000 to 300,00 while ended 24 May.

Pending home sales increased 0.4 percent in April but much below consensus. Another report on quarterly growth fell 1 percent annualized rate in Q1, worst than expectation. On Friday, consumer spending unexpectedly fell 0.1 percent, the first decrease in a year, after a 1 percent gain the prior month.

Japan’s retail sales slid 13.7 percent in April, worst in 14 years and after the launch of sales tax rise last month. Industrial production also fell 2.5 percent from March. Another report on consumer spending dropped 4.67 percent in April on yearly record.

Despite some major figures were affected by rising tax in Japan, consumer prices excluding fresh food rose 3.2 percent from a year earlier after a 1.3 percent increase in March, making 23 year record high. Unemployment remained at 3.6 percent.

German unemployment unexpectedly increased for the first time in 6 months as Eurozone economy slows down. The jobless workers rose at seasonally adjusted 23,937 to 2.905 million in May. However, the adjusted jobless rate was unchanged at 6.7 percent.

The Eurozne’s economic confidence rose to 102.7 in May from prior month 102. Industrial confidence improved to minus 3 from minus 3.5 in May. The overall inflation growth is still sluggish and worrisome to policymakers of resurging recession.

Monitoring the slow growing inflation, European Central Bank (ECB) President Draghi have hinted all options to stimulate the growth in the coming meeting on 5 June. Most market economists expect policymakers to become the first major central bank to take interest rates into negative territory.

The UK services companies’ confidence rose to a record this quarter, reached 53 high from previous quarter 43, indicating continued expansion. Hometrack Ltd reports home prices in England and Wales increased 0.5 percent in May after a 0.6 percent jump in April.

In a separate report, GfK NOP Ltd announces consumer confidence jumped 3 points to 0 this month, the first time rising from negative territory since April 2005.

Technical Forecast

USD/JPY has been moving in narrow range for many days with clear direction. The market is constricted in tight regions from 100.80 – 102.30 levels while waiting for more fundamental leads to pull it out. If no further action is initiated by Japan’s policymakers, we shall observe the USD strength to gauge the trend from now onwards.

EUR/USD is staging a rebound from 1.3600 regions though the lows went to 1.3586 last week. Moving forward, we reckon the trend will short-cover at 1.3720 as our first target. The outcome for this week’s ECB meeting is important as it will lead the trend to either recover to 1.3800 regions or head down further to 1.3500 levels.

GBP/USD has signaled downtrend in day-chart though it hovered at 1.6750 regions before weekend. This week, we reckon the resistance will emerge at 1.6800 regions while the bears will likely draw down further at 1.6550 targets. However, the downtrend has to break below 1.3680 first supports before it could realize our prediction at 1.6550 levels.

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

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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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