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European Union Cuts Budget for 7 Years

A guest post written by DAR Wong

Currency Market Observations – 11 February 2013

Fundamental Outlook

The US economy is little changed while investors still monitor the USD value. Japanese Yen trades sideways in digestion after recent devaluation. European Union reaches agreement to cut budget spending for next 7 years in Brussels meeting. Both Bank of England (BOE) and European Central Bank (ECB) keep interest rates unchanged.

The US factory orders climbed 1.8 percent in December though below forecast, after it was revised at 0.3 percent drop in November. Consumer credit rose for a fifth straight month in same stated month with consumer borrowing gained USD14.6 billion after followed a revised USD15.9 billion advance in November.

Another report showed US wholesale inventories unexpectedly fell 0.1 percent in December for the first time in six months. Trade deficits shrank to record low with trade gap narrowed 20.7 percent to USD38.5 billion in December, the smallest since January 2010, after oil exports surged.

Japan posted current account deficit for December with shortfall at JPY264.1 billion (USD2.8 billion). Then Yen slowed down in devaluation last week after Finance Minister Taro Aso said the weakening pace could be too fast. On the other hand, Bank of Japan (BOJ) Governor Masaaki Shirakawa will step down on 19 March and the retirement might accelerate Prime Minister Shinzo Abe’s campaign for aggressive easing.

European Union leaders agreed to a 7-year budget in spending cut for the first time. The proposed budget for period 2014 – 2020 was set at EUR960 billion (USD1.3 trillion), less than the EUR994 billion spent in the current budget cycle.

European Central Bank (ECB) President Mario Draghi expressed concerns of policymakers that strong Euro will hamper their efforts to pull the economy out of recession. Last Thursday, ECB kept its benchmark rate at a record low of 0.75 percent.

The UK Acadametrics and LSL Property Services Plc reported average price of a home in England and Wales increased 0.2 percent to GBP227,478 (USD357,300) in January. BOE remained its interest rate unchanged at 0.5 percent and its bond purchases will remain at GBP375 billion (USD$589 billion).

The NIESR foresees UK economy will expand 0.7 percent this year instead of the 1.1 percent forecast in November. The British Retail Consortium said retail sales rose 1.9 percent in January from a year earlier.

Technical Forecast

USD/JPY declined on Friday and settled at 92.64 for the weekend. Technically, we reckon the supports will lie at S1 – 92.00 and S2 – 90.30 levels if profit-taking persists in coming week. However, the possibility of surging higher is still potential while we keep our target at 95.00 areas.

EUR/USD has begun downfall after it broke below 1.3500 levels last week. This week, we expect the market to build up resistances at 1.3500 areas while continual plunge could drive to 1.3250 regions. Euro is facing liquidation as a sign to aid recovery in debt and exports in the 17-nation bloc.

GBP/USD may be trading in consolidation from now on with resistances emerging at 1.5850 – 1.5900 areas. The market is support at 1.3700 levels after it reversed up recently from 1.5630 regions. As we foresee the range for coming week may be constricted to 1.5700 – 1.5900 regions, abandon your long-view if the market sinks below 1.5700 again as danger of initiating new selling pressure.

Dar Wong

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

Wong is the founder and Principal Consultant of and holds a professional
qualification in NASD series 3 and 5 approved by National Futures Association (USA).

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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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