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FED Chief Reassures Low Interest Rates

A guest post written by DAR Wong

Currency Market Observations – 21 April 2014

Fundamental Outlook

The US Federal Reserve chief reiterates on maintaining low interest rates to ensure recovery track. Japan faces tough road ahead as confidence declines amid tax rise. Market investors lose optimism after no stimulus was mentioned by Kuroda. UK reports on falling unemployment that indicates good recovery.

The US retail sales jumped 1.1 percent in March and above expectation, after advancing 0.7 percent in prior month. Inflation measured by consumer prices accelerated 0.2 percent in March versus prior month of 0.1 percent gain.

The US building permits grew at 990,000 annualized rates in March and almost in-line with median forecast. Weekly jobless claims increased 2,000 to 304,000 in the week ended April 12 from a revised 302,000 in prior period that was the lowest since September 2007.

Federal Reserve chief Janet Yellen spoke about policymakers targeting to reduce employment in order to close the inflation gap. This will take another 2 years to fulfill but she also reassured of low interest rates to see through the recovery.

The US proposes to implement new economic sanctions on Russia over Ukraine. However, European Union expresses reluctance to follow in strong sentiment as the economic recovery among 18 nations still shows fragility.

Japan’s consumer confidence fell to the lowest level in March since August 2011. The rise in sales tax on 1 April hampered consumer spending while confidence index read at 37.5 and down 1 point from previous month. Investors wane in economic recovery pace as prices grow amid stagnant wages.

Bank of Japan Governor Kuroda says the stimulus implemented in April 2013 has worked effectively and will see through recovery. Market investors are disappointed to hear no further stimulus or incentive scheme has been mentioned in Kuroda’s speech.

UK inflation rate measured by consumer prices rose an annual 1.6 percent compared with 1.7 percent in February. Data was lowest in 4-1/2 years’ record. Another separate report by ONS reports annual house-price inflation accelerated to 9.1 percent in February, the fastest since June 2010. In London, prices surged 17.7 percent, the biggest increase since July 2007.

Britain’s unemployment rate dropped to a 5-year low in February, underscoring if central bank policymakers should raise interest rate to balance the growth. Jobless rate was reported at 6.9 percent in the 3 months through February from 7.2 percent in the quarter through January.

Technical Forecast

USD/JPY is seen with good support at 101.20 levels. Despite rising Yen due to weakening recovery in Japan, the war outbreak in Ukraine might drive flight of funds into Dollar in coming week and spike up USD/JPY rates. This week, we foresee the trend may climb up to 103.50 regions if it can stand firm above 101.50 supports.

EUR/USD has revealed bear trend in day chart. This week, we reckon the price will wind down if it can be capped under 1.3850 resistances. On moving down, our target aims at 1.3650 levels that might be due largely to rising Dollar factor. Abandon your short-view if the trend pierces above .3850 resistances.

GBP/USD fell from marginal high 1.6842 last week. This week, we expect the trend might decline further if the market does not break above 1.6850 resistances. The technical outlook leans to drawdown at 1.6600 targets if the bear steps into the market. Pay attention to the dollar trend that will lead the major currencies in case of enlarging situation in Ukraine.

Dar Wong

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

DAR Wong is an approved fund manager in Singapore with 25 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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