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European Central Bank Defends Policy

A guest post written by DAR Wong

Currency Market Observations – 25 April 2016

Fundamental Outlook

The U.S. new housing sits on low demand while job market grows with lowest claims in 43-year record. European Central Bank holds policy unchanged but reaffirms the recovery plan to be correct despite some disagreement. British retail sales drop amid slow job markets.

The U.S building permits rose 1.09 million for March but lower than revised 1.18 million in previous month. Another separate data on housing starts also indicates 1.09 million after February recorded 1.19 million revised figure.

American existing homes sales grew 5.33 million in March and better than revised 5.03 million in February. Weekly jobless claims fell to 247,000 after seasonally adjusted in the week ended 16 April, lowest in last 43 years. Momentum in job markets is growing despite weak economy.

Another separate report on Philadelphia manufacturing index declines to minus 1.6 unexpectedly in April after it recorded at 12.4 last month.

German ZEW sentiment that measures institutional investors shows 11.2 in April expectedly after it was at 4.3 last month. Rise is probably due to strength of Euro currency and positive expectation of more stimulus from policymakers.

Markit says Eurozone manufacturing index rises to 51.5 in April and in line with forecast. Another report on services index in the 19 nations also shows 53.2 after last month revision at 53.1.

European Central Bank holds finance interest rate unchanged at zero while deposit rates at minus 0.4 percent. Monthly purchase program for bonds stays at EUR80 billion. President Draghi reiterates that the policy action is within mandate and urges market investors to be patient for the gradual recovery. German pension fund and some investors cast doubt on negative rates in-lieu of recovery.

U.K. average earning index on quarterly basis ended February rose 1.8 percent but below forecast. Monthly claimants for jobless benefits increased 6700 in March after it slid 9300 in prior month. Unemployment on monthly report stays at 5.1 percent.

U.K. retail sales slid 1.3 percent in March and worse than forecast. Previous month was revised at minus 0.5 percent. Public sector net borrowing was reduced to GBP4.2 billion in March and down from previous month GBP6.3 billion.

Technical Forecast

USD/JPY surged more than 200 pips on Friday after market responded to Bank of Japan’s intention to introduce negative rates loan to commercial banks. This week, we reckon bullish trend will follow through market with support sitting at 110.50 regions. Uptrend might reach 113.00 – 113.50 ranges as our final targets.

EUR/USD has begun to recede lower as Dollar strengthens. This week, we foresee the market will head down to 1.1100 – 1.1130 bottoms before bargain-hunting arises. Resistance will emerge at 1.1300 areas which needs to be controlled by risk management in case of turning up.

GBP/USD climbed towards last weekend after U.S. President Obama visited London and discouraged Brexit in June. Pound ascended back to above 1.4400 levels that is countered by strong resistances. This week, we forecast the range will trade from 1.4250 – 1.4450 regions while Dollar index tends to be slightly stronger. Breaking beyond the aforementioned range will indicate new direction.

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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