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European Central Bank Eases Policy to Help Recovery

A guest post written by DAR Wong

Currency Market Observations – 14 March 2016

Fundamental Outlook

China trade surplus grows at smallest gain while consumer prices jump surprising. European Central Bank cuts rates again by easing massive stimulus in hope to revive the recession. U.K. poises for uncertainty in-lieu of national referendum for “Brexit” in June.

The U.S. wholesale inventories for January expanded 0.3 percent and higher than forecast, showing sign of demand slowdown in market. Weekly jobless claims dropped to 259,000 in the week ended 5 March, at best record over 4 months.

China’s trade surplus grew USD32.59 billion in February, making steepest decline since 2009, after it gained USD63.3 billion in January. Exports fell 25.4 percent on-yearly comparison in February, while imports declined 13.8 percent, clocking far bigger slides than expected.

China’s consumer prices rose 2.3 percent in February from a year ago, surprising the market and matches the best record last seen in July 2014. Factory gate prices also improved to minus 4.9 percent from a year ago after January declined at minus 5.3 percent.

Japan’s final GDP for the quarter ended December slid 0.3 percent but still better than minus 0.4 percent in previous Q3. Consumer confidence on household survey expanded 40.1 at worst since September last year.

German factory order contracted 0.1 percent in January but better than revised 0.2 percent decline in previous month. Industrial output rose 3.3 percent and better than forecast.

European Central Bank announces a new easing package for stimulating the economic recovery. Benchmark rate has been cut to zero from former 0.05 percent while deposit rate is reduced by another 10 basis point to minus 0.4 percent. Monthly bond-purchase program has been raised from current EUR60 billion to EUR 80 billion for buying government as well as corporate bonds.

U.K. manufacturing output grew 0.7 percent in January and best in past 4-month record. Another data on industrial output, including mines and utilities, rose 0.3 percent in same period.

British trade deficit widened to GBP10.3 billion in January from previous month GBP9.9 billion. Construction output shrank to minus 0.2 percent after it was revised at 2.1 percent gains in December. Market investors stay wary of “Brexit” issue in coming June.

Technical Forecast

USD/JPY has been trading sideways from 112.00 – 114.50 range for weeks. This week, we reckon not much change in sentiment unless the trend could break beyond either direction. Piercing above 114.50 might attempt 116.00 levels before falling again. Trade with risk management is advised.

EUR/USD fell to 1.0821 lows last week after rate cut but reversed in same session to 1.1218 highs. Investors are showing little confidence despite massive stimulus has been announced by policymakers though some analysts predict Euro will fall soon. This week, we reckon the range will trade lower at 1.1000 levels in uncertainty. Piercing above 1.1250 may lead to 1.1400 regions in case of Dollar devaluation.

GBP/USD continues to climb higher for recovery as trader begin to take profit. This week, we foresee the bulls may lift higher to challenge the strong resistance emerging at 1.4500 – 1.4550 regions. Support lies at 1.4150 levels which is likely to be tested once the trend fails to protrude above the aforementioned resistance.

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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