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European Central Bank Cuts Rate

A guest post written by DAR Wong

Currency Market Observations – 6 May 2013

Fundamental Outlook

The U.S. consumer spending and consumer confidence both rise in optimism. Federal Open Market Committee (FOMC) statement shows continual supports to monthly stimulus but at weaker voice by U.S. policymakers. European Central Bank (ECB) cuts rates by 25 basis points and lifts stock markets in general sentiment. Market analyst feel the ECB should have reduced half a percent to be more adamant in salvaging market slowdown.

The U.S. consumer spending rose 0.2 percent in March after a 0.7 percent increase the prior month. Another report on Conference Board’s sentiment index shows consumer confidence climbed to 68.1 in April and exceeding the highest estimate. The S&P/Case-Shiller index of home prices in 20 cities rose 9.3 percent in February from a year ago, proving recovery in housing slump.

The U.S. Institute for Supply Management’s factory index fell to 50.7 in April from the prior period’s 51.3. On Thursday morning, Federal Reserve released its FOMC statement saying policymakers will maintain monthly purchase of USD85 billion in bonds program but no more new plans added.

Separately, the U.S. trade deficit narrowed more than forecast in March after trade gap shrank 11 percent to USD38.8 billion from a revised prior month USD43.6 billion. Jobless claims fell by 18,000 to 324,000 in the week ended April 27, indicating mild job market recovery.

On Friday, the American payrolls expanded at 165,000 workers in April following a revised 138,000 increase in March. Unemployment hit 4-year low record at 7.5 percent, taking effect from federal budget cuts. Dow Jones Industrial Average (DJIA) reached 15,000 for the first time in history amid falling Dollar index (USDX).

Japan’s industrial production climbed 0.2 percent in March and less than median forecast, amid global contraction in demands. Yen recedes against Dollar from 97.00 to 99.00 levels on Friday after the U.S. payrolls increased.

An index in the Euro area that measures economic confidence shed to 88.6 in April from prior month 90.1, affected by slowdown amid recession. Annual inflation rate dipped to 1.2 percent in April and melted down from previous 1.7 percent. March unemployment rate jumped to 12.1 percent and highest since 1995 record.

The inflation in Germany, largest economy in Eurozone, slid to 1.1 percent from 1.8 percent in March indicating lowest in past 2.5 years. In the bid rate meeting held on last Thursday, European Central Bank (ECB) cut its main refinancing rate by 25 basis points to 0.5 percent as expected. President Draghi stresses policymakers will be open to negative deposit rate while market analysts feel more rate should be introduced.

Technical Forecast

USD/JPY recovers from intra-week low 97.01 to 99.00 levels on Friday. Technically, we reckon the market is prone to break above 100.00 benchmarks in coming week if DJIA can lead the bullish trend. Support is sitting firmly at 97.00 now while crossing above 100.00 will aim for 101.50 targets.

EUR/USD fizzled out from 1.3243 highs last week but still sits well at 1.3040 supports. This week, we forecast the market will consolidate within this range initially before declining further to test 1.2950 regions. Picking short from top retracement may be better strategy unless the trend pierces above 1.3250 resistances.

GBP/USD seems to be topping off 1.5600 levels while resisted by the EMA200 selling pressures. This week, we predict the trend will be more prone to drop at 1.5400 regions for a technical drawdown. However, breaking above 1.5630 is unfavorable for shorting and risk need to be managed.

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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