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FED Chair Yellen Reiterates on Rate Hike

A guest post written by DAR Wong

Currency Market Observations – 13 July 2015

Fundamental Outlook

The U.S. trade deficit widens due to higher Dollar and declining exports. FED Yellen stresses on rate hike may come on schedule before year-end. Greece stays in international limelight as debt rout remains unsolved. U.K. introduces budget cut by the newly formed government since May election. Monetary policy stays unchanged in Bank of England.

The U.S. Institute of Supply Management reports its service index expanded to 56.0 in June and higher than previous month 55.7. Trade deficit widened in May, fueled by a drop in exports and stronger Dollar. Trade gap widened to USD41.9 billion, lesser than forecast but higher than revised USD40.7 billon in April.

American weekly claims for job benefits rose to 297,000 in the week ended 4 July after the previous week was revised to 282,000. Another report on wholesale inventory increase 0.8 percent in May and higher than forecast, indicating slowdown in consumer demand.

FED chair Janet Yellen reiterates interest rate hike may come before year-end in-lieu of improving economy, dropping unemployment, inflation building up. However, traders speculate the credit tightening will come later in 2016.

Japan’s current surplus increased JPY1.64 trillion in May as consumer demand strengthened. Data was recorded at JPY1.27 trillion in April. Core machinery orders rose 0.6 percent in May and gained for sixth consecutive month.

So far, Greece rout remains as talk of town and infuriated the creditors for no sincerity to present plan for debt reform. Market investors are still observing the effects after 12 July while Greece is given final chance to present a valid debt reform deal or face expulsion from Eurozone.

U.K. manufacturing production dropped 0.6 percent in May and worse than expectation, from slowdown in exports demand. Another separate report on industrial output, covering mines and utilities, rose 0.4 percent.

U.K. government announces new austerity measures after the Conservative party won election since May. Finance Minister George Osborne introduces corporation tax cut towards 2020, scraps levy on banks’ and to be replaced by surcharged on profits, tax cut for lower income people while higher tax bracket for the riches, cut in country’s welfare bill by GBP12 billion etc.

British trade deficits narrowed by GBP8 billion in May and lower than GBP8.4 billion trade gap in previous month. Last week, Bank of England (BOE) held interest rates at 0.5 percent and asset purchase program at GBP375 billion.

Technical Forecast

USD/JPY bounced off 120.41 lows last week and settled at 122.50 regions. Yen stays in weakening trend and reveals the confidence in economic recovery. This week, we reckon the market may climb up to 124.00 regions. Support will emerge at 121.50 levels.

EUR/USD recovered from 1.0915 last week to 1.1152 for weekend. The market may begin to trade sideways in technical consolidation amid uncertainty of Greece outcome. This week, range is expected to move from 1.1000 – 1.1300 regions as traders adjust positions. Risk control is recommended if the trend breaks beyond this range.

GBP/USD has been down for more than 2 weeks and moves into technical recovery from 1.5329 lows. This week, we predict the trend will be prone to bulls and trade from 1.5350 – 1.5650 ranges. Picking bottom needs to be controlled with risk management. Pound will be strong for few weeks as confidence returns to British economy.

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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