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FED Abandons Jobless Rate to Monitor Rate Policy

A guest post written by DAR Wong

Currency Market Observations – 24 March 2014

Fundamental Outlook

The US sees improvement in industrial production and consumer prices though housing resale market still stays at bottom. Federal Reserve (FED) policymakers will abandon the unemployment benchmark as threshold measure for raising rate. Japan deepens its trade deficit and floats Yen value against Dollar. UK also reports higher budget deficit as government has been increasing spending.

The US industrial production gained 0.6 percent in February after lost 0.2 percent in prior month. Consumer prices were up 0.1 percent, matching the advance in January. Another report on housing starts rose 910,000 in February and in-line with expectation, beating the harsh winter seasons and lifted stock prices.

American existing home sales fell 0.4 percent to 4.6 million annual rates in February, lowest since July 2012. Jobless claims increased by 5,000 to 320,000 in the week ended 15 March. FED policymakers say they will probably scrap the 6.5 percent unemployment rate threshold for considering rate raise, but will adopt another qualitative measurement instead. No details have been reported yet.

The US FED officials predict their target interest rate will be 1 percent at the end of 2015 and 2.25 percent a year later, higher than previously forecast. Fitch Ratings agency increases its outlook on the US’s AAA credit-ranking to stable from negative.

The second largest world’s economy – China has slowed down in first quarter. A private survey shows overall industries including retail and mining perform at weaker revenue growth while loans through non-traditional channels became more expensive. Default of debt repayment in corporate bond instrument has emerged for the first time in March.

Japan’s trade deficits exceeded median forecast in February with shortfall rose to JPY800 billion (USD7.9 billion). Market analysts expect central bank policymakers will probably take action in new stimulus to defend the economic stagnation. The coming growth report in first quarter and sales tax rise in April have begun to put pressure on policymakers.

Eurozone’s consumer prices rose 0.7 percent in February from a year earlier, down from 0.8 percent in January. Another report on consumer confidence for March rose to minus 9.3 from prior month minus 12.7, showing traction gained in recovery. Market investors are monitoring in next central bank meeting as President Draghi has reiterated to defend low rate in stimulating growth.

UK unemployment rate was 7.2 percent for 3 months through January, same as the final quarter of last year. Jobless claims fell 34,600 in February and better than median forecast. The budget deficits enlarged in February as government spending increased. Shortfall showed GBP9.3 billion (USD15.3 billion), compared with GBP9.2 billion a year earlier.

Technical Forecast

USD/JPY has been moving from 101.00 – 103.50 ranges last week. We reckon the market will continue to thread inside this range until early April when clearer direction can be seen from BOJ’s action. This week, we predict first resistance will act at 103.00 levels while the trend may be prone to go back 101.00 bottoms.

EUR/USD failed to conquer above 1.4000 resistances last week while it turned down from 1.3967 highs. This week, we expect the market to be capped at 1.3850 – 1.3880 resistances and begin to make drawdown correction. However, the support is still seen at 1.3700 areas for the time being.

GBP/USD has begun to drop since last week. The market closed at 1.6484 while it will be resisted at 1.6600 regions in coming week. The trend is prone to decline further so long as the bears are capped beneath 1.6600 resistances. We reckon the corrective drawdown may reach 1.6300 regions in 1-2 weeks time.

Dar Wong

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

Wong is the founder and Principal Consultant of PWForex.com 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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