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European Central Bank Signals More stimulus to Salvage Recession

A guest post written by DAR Wong

Currency Market Observations – 8 September 2014

Fundamental Outlook

The US payrolls grow at slowest pace while manufacturing advances unexpectedly. Japan refrains from implementing stimulus despite Taro Aso comments it is in the pipeline. European Central Bank signals more stimulus to reverser the recession while U.K. maintains unchanged in its asset-purchase program.

The US Institute for Supply Management’s manufacturing index unexpectedly climbed to 59 from July’s 57.1, making highest record since March 2011. Another report on factory orders rose 10.5 percent in July against revised 1.5 percent in prior month, but still below median forecast.

The second monthly report by Institute for Supply Management on services index rose to 59.6 in August, the highest since August 2005, from previous month 58.7. Jobless claims rose 4,000 to 302,000 in the week ended 30 August.

The US payrolls advanced 142,000 in August that was smallest in this year’s record, after revised figure for last month was 212,000. Unemployment was down to 6.1 percent from prior 6.2 percent.

Japan’s central bank maintains record stimulus and promises to increase the annual monetary base by JPY60 trillion to JPY70 trillion (USD667 billion). Yen devalued by market sellers in early last week but began to rise again after mid week against Dollar, when policymakers refrained to inject immediate stimulus.

Japan’s Finance Minister, Taro Aso, says a back-up plan for stimulus is on the way to cushion the economic damage from recent tax rise and also take impact from further slow down.

Eurozone’s retail sales slid 0.4 percent in July and worst than forecast, after revised 0.3 percent gains last month. The inflation among 18 nations slowed down to 0.3 percent last month, way below the European Central Bank’s 2 percent goal.

In last week central bank’s meeting, ECB President Mario Draghi signaled to buy asset-backed securities with fresh financial aid worth EUR700 billion (USD910 billion) to reverse the 18 nations from recession. Euro currency dropped to below 1.30 against Dollar for first time since July 2013.

U.K. manufacturing PMI filed by Markit Economics gained 52.5 in August but lower than revised 54.8 in previous month. Another report on services growth by same institution rose to a 10-month high of 60.5 from 59.1 in July. Bank of England keeps its key interest rate unchanged at 0.5 percent, no change of this policy since March 2009.

Technical Forecast

USD/JPY reached 105.71 highs last week and closed at 105.08 for the weekend. This week, we reckon the market has to maintain above 105.00 benchmarks in order to climb high test 107.50 regions. If the rend turns down and begin to consolidate inside 103.50 – 105.00, this will be sign of weakness and might tend to retreat lower in coming weeks.

EUR/USD fell below 1.3000 last week after ECB President Draghi hinted more stimuli to steer out of recession. This week, the market may continue to drive lower at 1.2800 regions before bargain-hunting arises. Topside resistance lies at 1.3100 levels in case of technical recovery. Pay attention to the fundamental factors for driving new direction into the market.

GBP/USD closed at 1.6322 but may unwind further down at 1.6250 – 1.6300 bottoms this week. The market is ambushed with selling pressure while resistance emerges at 1.6470 regions. We should expect to see bearish sentiment being countered this week with technical recovery to appear soon from 1.6250 areas.

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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