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European Central Bank Extends Stimulus into 2017

A guest post written by DAR Wong

Currency Market Observations – 06 December 2015

Fundamental Outlook

The U.S. non-farm payroll dips below previous month report but better than expectation. FED chair Janet Yellen comments rate hike will be dependent on economic data in December. European Central Bank cuts deposit rate to minus 0.3 percent while extends monthly stimulus into 2017.

American pending home sales rose 0.2 percent in October, making first positive gains in past 3 months. The Institute of Supply Management reports the manufacturing index dropped below 50.0 levels at 48.6 in November, making first decline since June 2013.

Another separate report by Institute of Supply Management says the services index slid to 55.9 in November from previous month 59.1. Unemployment claims ended for the week at 28 November accounted 269,000 and remained steady.

The U.S. non-farm payroll increased 211,000 in October after it was revised at 298,000 in previous month. Jobless rate down to 5.0 percent. FED chair Yellen comments that rate hike in mid-December will be data dependent to check inflation growth. Market investors are prone to expect rate hike this month.

China’s Caixin manufacturing index climbed to 48.6 in November, dipping below 50.0 expansion levels for consecutive 9 months. Another government report shows services index at 53.6 without much change from October.

Japan’s retail sales gained 1.8 percent on annualized rates in October. Prelim industrial production climbed 1.4 percent after it grew at revised 1.1 percent in September.The final manufacturing index reports at 52.6 in November while capital spending increased 11.2 percent in Q3 from a year ago.

Eurozone flash estimate for consumer inflation in December rises 0.1 percent at annualized rates. Core inflation will grow at 0.9 percent year on year. Both are below benchmarks.

European Central Bank cuts deposit rates to minus 0.3 percent and extends the stimulus package for another 6 months in March 2017. Policymakers say they will continue asset purchase program in monthly EUR60 billion after targeted end at September 2016. Market investors are disappointed with the move.

Markit says construction PMI in UK rose to 55.3 in November, making fourth gains in consecutive months. The final manufacturing index dropped to 52.7 after it was reported at 55.2 in October. Another data shows services index grew 55.9 in November, maintaining growth above 50.0 benchmarks.

Technical Forecast

USD/JPY still hovers around 123.00 regions in small range trading. This week, we reckon the bears may come into market and drive down to 120.30 areas. Down trend is more prone due to weakening Dollar index has started on last Friday. Resistance will emerge at 123.70 levels for strong selling pressure.

EUR/USD reversed up last week after European Central bank disappointed traders with new stimulus below expectation. Euro shot up and might be heading higher in December. This week, we reckon the support will emerge at 1.0750 and skip higher to test 1.1050 areas. Beware of piercing above 1.7050 resistances that may lead higher to test 1.1200 tops.

GBP/USD turned up from 1.4900 bottoms and settled at 1.5100 for weekend. This week, we project the trend will sit well at 1.5050 supports and climb higher to 1.5300 in near future. Short-covering in pound will be expected once Dollar begins to fall in case of rate hike fever wanes in U.S. market.

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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