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European Central Bank Extends Stimulus

A guest post written by DAR Wong

Currency Market Observations – 12 December 2016

Fundamental Outlook

The U.S. economy turns into expecting inflation as services and factory order increase. China reports inflation growth while Japan increases in current account surplus. Italy opts for rejection in national referendum to reforms. Britain gains in trade balance but housing demand wanes in construction.

The U.S. Institute of Supply Management reports the services index at 57.2 and highest since January. Factory orders for October rose 2.7 percent unexpectedly after the previous month was revised to 0.6 percent gains. Another report on trade deficits widened to USD42.6 billion in October and worse than USD36.2 in September.

American jobless claims for the week ended 3 December was reported at 258,000 and matched forecast. The University of Michigan reports the consumer sentiment for December at 98.00 and highest in almost 2 years, from wide expectation of inflation growth following Trump policy.

Caixin services index in China grew to 53.1 in November and remains in growth pace above 50.0 benchmarks. Trade surplus in China fell to CNY298 billion last month compared to CNY325 billion in October. Consumer prices rose 2.3 percent while producer prices gained 3.3 percent on annual basis. Both are above forecast.

Japan’s current account surplus rose JPY1.93 trillion and up consecutive for second month. Final GDP for Q3 gained 0.3 percent and below forecast. Devaluing Yen against Dollar has helped exports of Japanese products.

Italy has completed the referendum of voting and confirmed a rejection to the parliament reform. Prime Minister Renzi has announced his resignation following the results but will delay till the budget vote is over. Analysts gather few tens of billion will be needed in coming months for paying off the country Bond yields.

German factory orders grew 4.9 percent in October and best record in last 5 years, after September contracted 0.3 percent. The overall GDP growth in Eurozone for Q3 was revised to 0.3 percent gains and matched forecast.

European Central Bank holds refinance interest rates at zero percent with saving rates remains unchanged at minus 0.4 percent. President Mario Draghi announces the extension of stimulus beyond March 2017 but tapers the monthly injection from current EUR80 billion to EUR60 billion from April to end 2017.

Markit reports services index in U.K. climbed to 55.2 in November and best record since January. The trade balance between export/import in U.K. narrowed to GBP9.7 billion deficits in October from GBP13.8 billion deficits in prior month.

Construction output shrank 0.6 percent in October from previous month 0.9 percent gains as housing investors wane confidence due to BREXIT execution.

Technical Forecast

USD/JPY closed at 115.27 on Friday and highest since February. The trend is seen very toppish but stubborn in reversing down while waiting for FOMC in coming week. Technically, we expect a possible top to reach 117.00 before falling. However, failure to ascend after FOMC on Thursday wee morning may initiate new bearish trend for correction to 111.00.

EUR/USD fell again after European Central Bank announced tapered extension of stimulus after March. Dollar rose and triggered selling in Euros. This week, we foresee range bound trading from 1.0500 – 1.0700 regions until FOMC announces the final rate decision before year-end. Beware of breaking beyond in either direction.

GBP/USD traded in small ranged last week as focus was in the above 2 markets. This week, the market may move higher from 1.2500 – 1.2750 ranges in cautious demand. Beware of breaking beneath 1.2500 supports that might land back at 1.2250 regions.

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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