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European Central Bank Stresses on New Stimuli if Needed

A guest post written by DAR Wong

Currency Market Observations – 26 January 2016

Fundamental Outlook

The U.S building permit is down while existing home sales make fictitious jump due to backlogged process of mortgage application. European Central Banks holds interest rates unchanged and express affirmation to introduce new stimuli if needed. U.K. sees small rise in inflation from consumer prices and factory gate cost.

The U.S. building permit was reported at 1.23 million in December versus revised 1.8 million in November. Consumer prices contracted 0.1 percent in December while core prices, excluding food and energy, expanded 0.1 percent. Both data are below expectation.

American jobless claims rose to highest since July last year at 293,000 in the week ended 18 January.Existing home sales jumped 14.7 percent in December after 11 percent decline in previous month. Analysts comment there is no real increment in housing market but the rise was due to backlogged process of mortgage application in November as a result of new risk access program for home purchasers.

China’s GDP for final quarter rose 6.8 percent and expanded at slowest pace for last 25 years. Another report on industrial production including manufacturing, mines and utilities grew 5.9 percent and lower than 6.2 percent in previous month gains.

German ZEW Economic sentiment on institutional investors’ confidence is up 10.2 in January but lower than 16.1 in last month. The final core consumer prices in January rose 0.2 percent from a year ago as expected.

German manufacturing PMI reported by Markit expanded to 52.1 and lower from revised 53.2 in December. Service PMI rose to 55.4 and in line with expectation.

Last week, European Central Bank held interest rate unchanged at 0.05 percent. However, President Mario Draghi says policymakers will be ready to implement more stimulibefore March if recovery continues to stay stale.

The consumer prices in U.K. expanded 0.2 percent in January from a year ago and better than expected. Producer prices of manufacturers improved better to minus 0.8 percent from November’s minus 1.6 percent.

U.K. claimant count in January reduced by 4300 and better than forecast. Average earning of 3 months through November gained 2 percent compared to 2.4 percent in prior period. Retail sales fell 0.1 percent in December and down from revised 1.3 percent gains in previous month.

Technical Forecast

USD/JPY traded higher towards weekend after market dipped to 116.0 bottoms. This week, we foresee the trend will continue to make short-covering and likely to rise to 119.50 regions. Support will sit at 117.00 levels amid some buying interest.

EUR/USD is trapped inside the range from 1.0700 – 1.0980 regions. This week, we predict it is more likely to trade lower at aforementioned range for making consolidation. However, risk needs to be controlled in case the trend extends beyond either side of the consolidation range.

GBP/USD stretched down to 7-year low at 1.4078 last week and recovered. Technically, we reckon the trend will continue to rise amid short-covering as the market has been declining for past 3 months. Resistance is identified at 1.4650 levels that will cap the range for near-term recovery while holding strong at 1.4100 supports.

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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