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European Central Bank Cuts Growth in 2017

A guest post written by DAR Wong

Currency Market Observations – 12 September 2016

Fundamental Outlook

The U.S. jobless claim reduces to 7-weeks’ best record. Japan’s Kuroda says will adopt more easing options while European central Bank holds tight on halting the target stimulus in next March. Stocks decline is seen amid waning confidence among investors.

The U.S. Institute of Supply Management says its service index recorded at 51.4 in August and worst since April 2014, after fell from 55.5 in July. Another data jobless claims for the week ended 3 September reduced to 259,000 and best in past 7-weeks’ record.

China’s trade balance for August charted at CNY346 billion and almost unchanged from previous month, but fell short from forecast. The consumer prices gained 1.3 percent in August on year basis and down from previous month 1.8 percent. Another report on producer prices has improved to minus 0.8 percent from a year ago versus the minus 1.7 percent decline in July.

Japan’s BOJ Governor Kuroda says policymakers will adopt more options for easing policies while maintaining deeper negative rates will be part of future program to revive slowdown. However, Yen appreciates after the talk since no action has been outlined.

Japan’s tertiary industry index rose 0.3 percent in July and shows weak business activity. Current account surplus rose JPY1.45 trillion in July but lower than JPY1.65 trillion in prior month. Final GDP for second quarter rose 0.2 percent and better than expectation.

German industrial production, including mines and utilities, dropped 1.5 percent in July after making 1.1 percent gains in June. German trade balance records at EUR19.4 billion in July and weakest in past 5 months. Eurozone revises GDP for Q2 ended June at 0.3 percent and unchanged from initial estimate.

European Central Bank (ECB) held interest rates unchanged in last week meeting. The rate on the ECB’s marginal lending facility stands at 0.25 percent, with the rate on the deposit facility at -0.4 percent. The fixed rate on the ECB’s main refinancing operations remains at zero.

ECB President Draghi downplays the stimulus program by mentioning nothing on extension of asset purchase program beyond Q1 2017. Moreover, policymakers reduce forecast of growth in 2017 and 2018 to 1.6 percent in the bloc 19-countries.

Markit reports service index in U.K. grew 52.9 in August versus 47.7 in previous month, making a jump above forecast. Manufacturing production slid 0.9 percent in July, worse than minus 0.2 percent at revised decline in previous month. The NIESR GDP estimate for 3 months ended July reports at 0.3 percent gains and matched forecast.

Technical Forecast

USD/JPY has shown bearish pattern with resistance emerging at 103.00 – 103.50 regions. This week, we reckon high possibility to re-test the 99.50 supports in case of drawdown. Trade cautiously with risk control in case the bears drive lower to 98.00 upon breaking aforementioned support.

EUR/USD has been threading sideways with no certainty. This week, we foresee the trend will be seated at 1.1130 areas while capped under 1.1360 levels. Upon breaking the range, it is possible to move in either way based on fundamentals news. Observe the speech of ECB President Draghi for leading new market direction.

GBP/USD has been trading sideways for past in mild recovery. This week, we foresee the support will lie at 1.3200 and 1.3050 levels while market may aim higher. We also observe the strong resistance at 1.3400 levels as possible breakaway if this level is violated.

Dar Wong

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

DAR Wong is a registered fund manager in Singapore with 26 years of global trading experiences. You may reach him at dar@pwforex.com

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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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