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Expectation of Rate Hike in June Heightens

A guest post written by DAR Wong

Currency Market Observations – 23 May 2016

Fundamental Outlook

The U.S. economic data shows recovery and suggests possible rate hike in June. Eurozone increases in current account while British jobless claim slides. U.K. retail sales also jumps and strengthens Pound value.

The U.S. consumer prices rose 0.4 percent in April, highest since May last year and giving an expectation to rate hike in next month. Excluding fresh food and energies, core prices gained 0.2 percent and matches the forecast. Building permits rose 1.12 million and higher than 1.08 million gains in March, boosting some confidence in housing markets. Housing starts also climbed 1.17 million in April.

American jobless claims dropped to 278,000 in the week ended 14 May and lower than 294,000 in previous week, fueling job market recovery for possible imminent rate hike. Manufacturing index in Philadelphia slides 1.8 percent against positive forecast in May.

Few Federal Reserve policymakers comment the U.S. economy is recovering and ready for rate hike in June. Federal Reserve will likely raise interest rates next month if economic data points to stronger second-quarter growth as well as firming inflation and employment, according to minutes from the U.S. central bank’s April policy meeting released on Wednesday.

Japan’s revised industrial production for March rose 3.8 percent and better than expected. Core machinery order rose 5.5 percent in March on monthly basis. Another report on prelim GDP for Q1 rose 0.4 percent and higher than forecast, after the previous quarter ended December shrank 0.3 percent.

German producer prices rose 0.1 percent in April on monthly release, seeing positive growth for first time in past 12-month record. Another data shows current account surplus in Eurozone increases EUR27.3 billion in March, highest in past 6 months.

U.K. consumer prices rose 0.3 percent in April from a year ago. Core prices climbed 1.2 percent on annualized rates. Both data are below median forecast.

British claimant for jobless benefits sank 2,400 in April and better than revised 14,700 gains in prior month. Average earnings on 3-month basis ended April rose 2.0 percent for second consecutive month. Another separate data on retail sales jumped unexpectedly to double the forecast at 1.3 percent gains after it slid revised 0.5 percent in March.

Technical Forecast

USD/JPY has been trading in mild bullish sentiment after it broke after 109.50 resistances. This week, we reckon the trend will continue higher to 112.00 regions if it can be supported above 109.50 levels. Dollar is expected to be firm until mid-June in-lieu of U.S. central bank meeting.

EUR/USD traded in weakening trend last week inversely to higher Dollar. This week, we foresee support will emerge at 1.1150 – 1.1180 areas in case of another test at bottom prices. Range is largely expected to move from 1.1150 – 1.1300 regions in sideways trend. Risk control is advised if the trend shoots beyond the aforementioned range.

GBP/USD reached 1.4663 highs last week and closed lower at 1.4500 for the weekend. This week, we predict the range will move from 1.4450 – 1.4650 regions initially but prone to break beyond in either direction after mid-week. Observe the U.K. economic data that are more prone to positive numbers ahead of national referendum in June.

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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