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Europe Strengthens While Japan Faces Dilemma

A guest post written by DAR Wong

Currency Market Observations – 12 August 2013

Fundamental Outlook

The U.S. shows recovery in demands amid falling stockpiles. Japan meets challenge of deciding new sales tax by year-end while inflation is far from 2 percent target. Eurozone and U.K. indicate recovery mode in consumer markets and low interest rates are assured by British central bank to enhance recovery.

The U.S. Institute for Supply Management’s service index increased to 56 in July from last month 52.2, exceeding all forecast. Another separate report on trade balance shrank lesser than estimate at USD34.2 billion compared to minus USD44.1 billion in June. Market resumes expectation in tapering stimulus next month by policymakers.

The U.S. consumer borrowing increased USD13.8 billion in June after followed a revised USD17.5 billion advance in the previous month. Jobless claims rose to 333,000 in the week ended 3 August, in line with median forecast. Before the weekend, wholesale inventories unexpectedly dropped 0.2 percent in June after followed 0.6 percent decline in previous month. Stockpiles fell for third month as demand has been growing from gradual economic recovery.

The Bank of Japan (BOJ) will expand its record easing by June next year as inflation stays remote from the 2 percent target. Consumer prices excluding fresh food rose 0.4 percent in June. Yen rises against Dollar from waning confidence of global investors.

BOJ Governor Haruhiko Kuroda warns that delay in implementing the new sales-tax may hamper the recovery mode in current recession. Prime Minister Abe faces dilemma to launch a sales tax hike of adding 3 percent in next April that market analysts predict will initially cause at least one quarter of economic contraction.

German factory orders, after seasonally adjusted, rose 3.8 percent in June and highest in past 8 months. Another report on factory orders gained 2.4 percent from May when it dropped a revised 0.8 percent. Recent data revealed Germany is leading recovery among the Euro area from recession while preparing for election in September.

Services in Eurozone rose to 49.8 in July from 48.3 in June, gathering strength for recovery and above initial estimate. Euro currency has been resilient throughout the whole week despite small profit-taking on Friday.

The U.K. services accelerated to 60.2 in July from previous month 56.9, making highest record since December 2006. Industrial production jumped 1.1 percent in June and surpassed forecast.

Halifax shows that U.K. house prices rose for a sixth month in July. Home values increased 0.9 percent from the previous month to an average GBP169,624 (USD260,800). Another separate report shows mortgage approvals climbed 21 percent in July from a year earlier as bank lending to homebuyers has been increasing.

The exports in British economy gained 4.9 percent to GBP78.4 billion (USD122 billion) in Q2, the most since this data began in 1998. The quarterly trade deficit narrowed to GBP24.9 billion from GBP26.5 billion. Bank of England (BOE) governor Carney announces that the central bank will not be raising its benchmark rate from 0.5 percent until unemployment falls to 7 percent. Policymakers foresee no change to monetary policy until the third quarter of 2016.

Technical Forecast

USD/JPY has dropped from 99.00 regions to 96.00 levels last week as Yen strengthened. This week, we reckon the market will consolidate from 95.80 – 97.50 regions due to some profit-taking activities. Strong resistance might emerge at 98.00 levels should the trend climb higher. Abandon your long-view if the prices fall beneath 95.50 supports.

EUR/USD was bullish last week while climbing up from 1.3230 regions to 1.3400 highs. The market closed at 1.3340 levels for weekend and has become quite neutral now. Technically, we foresee strong selling pressure at 1.3400 resistances and the trend may begin to head down to 1.3270 – 1.3300 this week. Abandon your short-view if the trend pierces above 1.3400 levels.

GBP/USD was strong last week as Dollar weakened. The market is likely to consolidate from 1.5450 – 1.5600 regions in coming week before sliding. However, shorting needs to be accompanied by risk management in case the bulls march above 1.5600 levels. Going below 1.5450 supports is the initiation of new selling pressure that might bring the market down to 1.5300 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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