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FED Announces Tapering Stimulus in January

A guest post written by DAR Wong

Currency Market Observations – 23 December 2013

Fundamental Outlook

The U.S. industrial production rises and national growth surges. Dow Jones markets close at record high despite tapering of stimulus. Japan reports largest trade deficits and Bank of Japan (BOJ) reiterates the continual expansion of monetary base. The Pound has been pushed up by strong market sentiment despite U.K. economic data remains flat. Budget deficit expands in U.K. and triggered profit-taking in some liquidation before weekend.

The U.S. industrial production climbed highest in a year after showing 1.1 percent gains in November. Consumer prices remained at par after a 0.1 percent drop in October. Core prices were up 0.2 percent and national inflation stays below 2 percent benchmark that signifies slow growth.

American housing starts jumped 22.7 percent to a 1.09 million annualized rate, exceeding all forecasts in November and indicated housing demand may soon begin in 2014. Jobless claims climbed by 10,000 to 379,000 in the period ended 14 December, the most since the end of March.

Another report on U.S. existing homes dropped 4.3 percent in November to a 4.9 million annual rate. The Conference Board’s index, a measure of the outlook for the next three to six months, increased 0.8 percent after rising 0.1 percent in October.

Last week, the U.S. Federal Reserve announced tapering its monthly bond purchases to USD75 billion from current USD85 billion. Trimming policy will begin in January and Chairman Ben S. Bernanke says recovery of economy has begun. Dow Jones Industrial Average Index closed at 16,221 on Friday while posting record high.

The U.S. Domestic Gross Product (GDP) gained at revised 4.1 percent annualized rate in Q3, exceeding the initial estimate and rose at fastest in almost 2 years. President Barack Obama comments that the U.S. economy is going to head into 2014 with strong growth and new jobs.

The Japan’s Tankan report on manufacturing index was up 16 and surpassed the forecast. However, Japanese companies plan to boost spending by 4.6 percent in the year ending March 2014, while compared to 5.1 percent projection 3 months earlier.

Japan reports the biggest November trade deficit on record as imports climbed 21.1 percent from a year earlier, demands triggered by sales-tax increase in April. Exports climbed 18.4 percent, resulting in shortfall JPY1.29 trillion yen (USD12.6 billion).

BOJ Governor Haruhiko Kuroda’s board pledges its consistence to expand the monetary base by an annual JPY60 trillion to JPY70 trillion (USD670 billion) after a two-day meeting in Tokyo, despite U.S. has decided to trim stimulus.

U.K. inflation unexpectedly slowed in November over past 4 years and moved closer to the Bank of England’s 2 percent target. Consumer prices rose 2.1 percent from a year earlier compared with 2.2 percent the previous month. British Pound has been remaining strong for past 2 months as Bank of England (BOE) policymakers remarked interest rates may be raised to counter inflation growth.

The U.K. budget deficit excluding temporary support for banks expanded to GBP16.5 billion in November compared with GBP15.6 billion a year earlier. Another report by GfK NOP Ltd shows its consumer-sentiment index dropped to minus 13 this month from minus 12 in November. Pound dropped for the first time after rising for past 3 days.

Technical Forecast

USD/JPY has inched above 103.50 levels last week but buying sentiment slowed down. In our opinion, the Dollar has to be stronger with rising DJIA if we need to see continual bull trend in USD/JPY. This week, we reckon support will emerge at 102.50 regions in case of technical drawdown. However, there is a possibility of reaching 107.00 targets in-lieu of bullish new record in DJIA.

EUR/USD met support at 1.3620 levels on Friday and will be countered at 1.3600 – 1.3620 regions for coming week. The market may soon be moving into technical consolidation with sideways range climbing up to 1.3750 areas. Technically, we foresee the range to thread from 1.3600 – 1.3750 regions but breaking beneath 1.3600 supports needs to abandon your long-view.

GBP/USD may begin to fizzle out after hitting this year-high at 1.6484 levels. Technically, we reckon the market resistance will be tough at 1.6400 – 1.6450 regions if the bulls resurge in early part of this week. Most probably, we favor a continual slide with some liquidation in market till 1.6200 regions. Picking short entry on intra-day pull-ups may be better strategy for short-term trading for coming week.

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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