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Euro Plunges After Hungary is Downgraded

Currency Market Observations – 28 Nov 2011

Fundamental Outlook

The US congress fails to reach an agreement to cut the budget and panicked the stock markets. Europe continues to be threatened by viral debt crisis after Hungary has been downgraded by Moody’s Investors Service. British policymakers sound out that additional stimulus may be added to revive the economy.

The US existing home sales increased 1.4 percent to 4.97 million annual rates in October as falling housing prices attracted buyers. Orders for durable goods declined 0.7 percent after 1.5 percent drop in prior month. Initial jobless claims increased 2,000 in the week ended 19 November to 393,000.

Last week, Obama administration fell out of negotiation with congress leaders to work out the agreement to cut budget deficits by USD1.2 trillion. Dow Jones market plunged out of fear. Fortunately, not much trading activities were seen after Wednesday as Americans went for a long weekend after Thanksgiving Day.

Japan’s overseas shipments shed 3.7 percent in October from a year before, due to rising yen and global slowdown. Another separate report on consumer prices excluding fresh food slid 0.1 percent on annual basis from last October, against the government’s prediction of gradual recovery. Investors are fearful of deepening deflation and expect more intervention to be called by Bank of Japan.

European’s consumer confidence dropped November when the index of household sentiment in the 17-nation euro area fell to minus 20.4 from minus 19.9 in October. Another index that measures the composite index on services and manufacturing industries rose to 47.2 in November from 46.5 in October, indicating persisting contraction as it maintained below 50 benchmarks.

Bonds yields in France, Spain and Italy climbed as bad signs due to loss of investors’ confidence. On Friday, Moody’s Investors Service cut the Hungary’s credit grade to junk and hammered euro to 7-week low.

Britain’s budget deficits excluding support for banks fell to GBP6.5 billion (USD10.2 billion) from 7.7 billion pounds a year earlier. The austerity measure implemented by government is taking effects as it targets to cut 9 percent deficits of economic output by 2015.

UK economic growth accelerated in the third quarter as government injects spending into private sectors. GDP rose 0.5 percent from Q2 when it increased 0.1 percent. Central bank policymakers promised to remain the bonds purchase program at GBP275 billion (USD428 billion) while signaled more stimulus may be needed.

Technical Forecast

USD/JPY moved in tight range last week as we forecast from 76.50 – 78.00 regions. Nothing can help the market to step beyond the boundaries unless another intervention is called by the Japan’s government. Investors are losing interest in this market while Japan sinks into deflation.

EUR/USD plunged last week from negative news in Eurozone as it failed to stayed abode 1.3500 benchmarks for more than a day. The euro is much affected by the contagion debt crisis as the bears have taken control of the sentiment. This week, we foresee the support will appear at 1.310 – 1.3150 levels before it may reverse from here. Sideway consolidation will be capped at 1.3400 regions.

GBP/USD has been falling with no technical consolidation yet. This week, if the market does not turn and close above 1.4500 levels, we might see the bears reaching to the 1.4250 regions before buying interest will emerge. We foresee the trend will remain weak or trade in small sideways for at least another 2 weeks.

Dar Wong

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

Wong is founder and principal consultant of PWForex.com and holds a professional qualification in NASD series 3 and 5 approved by National Futures Association (USA). He was previously attached with Bankers Trust Futures Inc, Barclays ZW Futures and Smith Barney Shearson (Citigroup) Inc.

He is also an active trader and author of 8 Ways to Invest In China’s Emerging Markets. Wong is also columnist for The Star, The Borneo Post in East Malaysia, The Busy Weekly, The Trader’s Journal, The Forex Journal, The Pulses, The Analysts and Capital Asia magazine.

He is a regular speaker on trading topics as well as Master Speaker for the annual Asia Traders and Investors Convention (ATIC).

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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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