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European Central Bank Keeps Rates Unchanged

A guest post written by DAR Wong

Currency Market Observations – 12 May 2014

Fundamental Outlook

The US FED chief Janet Yellen hints of stimulus as necessary action to ensure economic recovery. China reveals flambuoyant economy as consumer prices decline amid rising national trade surplus. European Central Bank (ECB) remains interest rates unchanged but President Draghi forewarns of injects imminent stimulus if growth stalls.

The US Institute for Supply Management’s non-manufacturing index rose to 55.2 in April compared to previous month 53.1. Another report shows trade deficits narrowed in March with trade gap shrank by 3.6 percent to USD40.4 billion from the prior month’s USD41.9 billion.

The US consumer credit rose USD17.5 billion in March that was bigger than revised USD13 billion in last month. Non-revolving loans, including borrowing for cars and college tuition, rose by the most in 6 months. US jobless claims fell 26,000 to 319,000 in the week ended 3 May.

FED chief Janet Yellen comments that US economy still needs strong stimulus even after 5 years after the recession ended because unemployment and inflation are well short of the Fed’s goals. Last week, Dow Jones benchmarks regained to almost new historical high at 16,600 regions.

China reports an unexpected surge in trade balance for April. Surplus recorded USD18.45 billion gains from USD7.71 billion in March. Before the weekend, consumer prices moderated to an 18-month low and the decline in factory-gate prices persisted. Consumer prices rose 1.8 percent from a year earlier in April while producer prices fell 2 percent, the 26th straight decline, after a 2.3 percent drop the previous month.

Last week, European Central Bank (ECB) officials left its benchmark rate at a record low of 0.25 percent and the deposit rate at zero. The marginal lending rate was held at 0.75 percent. Following the statement, Euro currency fell from 1.3994 highs and contracted before weekend. ECB President Draghi hints that stimulus action may be acted in June as rising Euro dampens exports and economic recovery.

During middle of last week, Euro currency overnight interbank rates exceeded the European Central Bank’s benchmark interest rate at 0.25 percent for the first time since 2008, signaling fragility of economic confidence and fear as in pre-crisis behavior. ECB left its benchmark rate at a record low of 0.25 percent and the deposit rate at zero. The marginal lending rate was held at 0.75 percent.

Market Economics in London reports Purchasing Managers’ Index increased to 58.7 from 57.6 in March, indicating growing economic momentum. UK manufacturing production rose 0.5 percent in March after it rose 1 percent previously. Industrial production fell 0.1 percent, after rising a revised 0.8 percent the previous month.

Last week, British Pound waned after rising to 4-year high record at 1.6996 levels. NISER predicts that British economy will grow 2.9 percent this year, exceeding its peak in 2008.

Technical Forecast

USD/JPY has been trading sideways below 102.00 levels in losing interest. Market is constricted from 101.20 – 103.00 ranges without fresh factors to pull the trend out of it. This week, we will adopt neutral sentiment and observe the market trend till it breaks beyond either side of the aforementioned extremes.

EUR/USD dropped last week after ECB President Draghi commented of imminent stimulus in June. Technically, we foresee the market may decline further in coming week to 1.3600 – 1.3650 before bargain-hunting emerges. Resistance of selling forces will develop at 1.3850 levels onwards as many long traders may wish to liquidate upon technical short-covering.

GBP/USD has begun to decline after following the Euro sentiment. This week, we reckon the trend will sink further at 1.6650 levels while resistance will cap at 1.7000 areas. Market is prone bias to make technical correction after rising to 4-year highs record though it failed to break above 1.7000 benchmarks last week.

Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

DAR Wong is an approved fund manager in Singapore with 25 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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