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European Central Bank Urges for Economic Reform

A guest post written by DAR Wong

Currency Market Observations – 8 September 2014

Fundamental Outlook

The US budget deficit shrinks as core retail sales steadies. Japanese Yen weakens due to strengthening Dollar despite Bank of Japan have been refraining from injecting more stimulus. German remains resilient in trade surplus while European Central Bank urges for economic reform.

American jobless claims increased to 315,000 for the week ended 6 September and above median forecast. Another report on budget deficit narrowed 22 percent in first 11 months of fiscal year as economy recovers. Shortfall shows USD589.2 billion from October through August compared with USD755.3 billion gaps in the same period a year earlier.

The US core retail sales excluding auto sales rose 0.3 percent in August, same as revised data in previous month. Dollar is still strengthening against European currencies in-lieu of fear in interest rate increment as stimulus will be fully withdrawn before November.

China exports rose in August by 9.4 percent from a year ago, leaving trade surplus at USD49.8 billion. The consumer prices slid to 2.0 percent on annual basis from July at 2.3 percent. Market investors are still watching China’s economy closely as contracting inflation and manufacturing may continue to drive fund into US assets.

Japan’s Prime Minister Shinzo Abe says the weakening yen to 6-year low will help Japan to recovery from impact of sale-tax increase that has caused the largest contraction in 5 years. Final GDP in second quarter contracted 1.8 percent and in-line with median forecast, showing stagnation in growth.

German trade balance gained the most in more than 2 years, climbing 4.7 percent from June to EUR101 billion. The trade surplus widened to EUR22.2 billion from EUR16.4 billion in June. Another report on German final inflation measured by consumer prices shows par growth in August and unchanged from previous month.

The industrial output in euro area rose 1.0 percent in July and better than median forecast. European Central Bank President Mario Draghi points out that Euro area’s economy will only return to pre-crisis levels if governments work with the European Central Bank to achieve reforms and stimulate growth.

Technical Forecast

USD/JPY has been bullish last week as it closed above 107.00 for the weekend. This week, we reckon the support will emerge at 105.50 regions while the trend might climb higher to reach 110.00 levels. Strong Dollar is the cause for market ascension that will expedite Japan’s exports.

EUR/USD traded sideways while it closed in small recovery on Friday. Market is expected to be capped beneath 1.3050 resistances and might continue to fall again. Technically, we foresee the bears may drive lower at 1.2750 areas this week if the trend could not close above 1.3000 benchmarks.

GBP/USD recoiled last week from 1.6052 lows. The market will be prone to perform consolidation this week from 1.6050 to 1.6430 ranges if the trend continues to recover. However, beware in case of declining again as breaking below 1.6050 supports could be a sign of further decline at 1.5850 targets.

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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