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FED Holds Rate Unchanged While Investors Watch Britain

A guest post written by DAR Wong

Currency Market Observations – 20 June 2016

Fundamental Outlook

The U.S. job market tightens while consumer inflation slows down. Japan holds policy unchanged. Greece wins new bailout approval worth EUR7.5 billion. U.K. sentiment submerges in anxiety as national referendum on BREXIT will be held this week.

The U.S. retail sales rose 0.5 percent in May and lower than 1.3 percent in April. Core retail, excluding automobiles, grew 0.4 percent at half of prior month’s growth. Another separate report on producer prices gained 0.4 percent in May, highest record in past 12 months.

American industrial output dropped 0.4 percent after revised 0.6 percent growth in April. Weekly claims for jobless benefits rose to 4 –week high at 277,000 ended 11 June. Consumer prices grew slower at 0.2 percent in May versus 0.4 percent gains in April. Core prices rose 0.2 percent as expected.

The U.S. Philadelphia manufacturing index jumped 4.7 gains in June, about 4 times more than forecast. Building permits in May rose 1.14 million, highest in past 3 months but in-line with median forecast.

Federal Reserve remains status-quo in monetary policy with no rate hike. Low payrolls and meager inflation growth has deterred Fed Yellen to tighten credit though traders expect the next hike might still come in September.

China’s industrial output by manufacturers, mines and utilities grew 6.0 percent in May on annualized rates and same as median forecast.

Japan maintains unchanged in monetary policy and disappointed market traders with no stimulus. Monetary base will increase at an annual pace of JPY80 trillion (USD760 billion) and negative interest rate of minus 0.1 percent.

The Eurozone industrial production grew 1.1 percent in April compared to minus 0.7 percent in March. Greece has obtained an approval of new bailout EUR7.5 billion (USD8.4 billion) from Eurozone finance ministers for next week’s debt repayment.

U.K. consumer prices gained 0.3 percent in May from a year ago. Another monthly data on producer prices jumped 2.6 percent after making 0.9 percent growth in April. Monthly claimants for jobless benefits slid 400 cases in May compared to 6,400 in April. Average earning on quarterly basis ended April rose 2.0 percent.

Bank of England opts for no change in interest rate at 0.5 percent and asset purchase program maintains at GBP375 billion. Another separate data shows retail sales grew 0.9 percent in May after it gained revised 1.9 percent in previous month.

Policymakers warn of serious consequences in the case of BREXIT and driving global economy into risk. Referendum on the national vote will be held on this Thursday.

Technical Forecast

USD/JPY dropped to new year-low last week beneath 104.00 levels. This week, we predict the sentiment will be prone bearish though pull-up may be possible to reach 105.80 areas. Beware of new decline after mid-week and drive down to 101.50 bottoms.

EUR/USD traded in sideways trend last week and stood above 1.1180 supports. Market has been hovering around 1.1280 regions in uncertainty before weekend. This week, we reckon range trading will occur in early week from 1.1200 – 1.1350 regions until it breaks beyond in either direction. Observe your risk wisely for adversity.

GBP/USD recovered from 1.4011 bottoms last week ahead of BREXIT vote. This week, the trend may stay sideways in neutral regions from 1.4250 – 1.4450 ranges before the referendum. Market predicts sharp fall will entail in case of vote-out of European Union and vice versa. Beware of sharp range or huge swings towards the weekend.

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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