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FED Will Continue Tapering in Coming Months

A guest post written by DAR Wong

Currency Market Observations – 10 February 2014

Fundamental Outlook

The US non-farm payroll declines for a second month while weekly jobless claims steadies. The FED officials reiterate continual program in tapering stimulus despite stocks may fall further. European Central Bank (ECB) and Bank of England (BOE) both remain the benchmark rates unchanged in the meeting but will continue to monitor inflation check.

The US Institute for Supply Management reports the monthly service index went up to 54 from 53 in December. FED Bank of Atlanta President Dennis Lockhart comments policymakers may revise their forward guidance to refrain the interest rates from rising in near future.

Weekly jobless claims among American citizens dropped 20,000 to 331,000 in the period ended 1 February. Trade deficit narrowed down 12 percent to USD38.7 billion in December. Dow Jones benchmarks fell in mid last week amid fear of tapering effects.

Towards the weekend, monthly payroll added pessimism after a second month of job slump. Non-farm payrolls rose only at 113,000 in January after a gain of 75,000 in prior month. Unemployment rate dropped to 6.6 percent and slightly better than prior month.

FED economists claim that past 2 months of weak payrolls will not halt the tapering program imposed by policymakers. On the other hand, Treasury Secretary Jacob J. Lew expresses the US borrowing authority may not last beyond February and urges Congress to raise the debt ceiling as soon as possible.

German industrial output unexpectedly slid in December and signaled its vulnerable status to regional slump. The data, after adjusted for seasonal swings, decreased 0.6 percent vs. a revised 2.4 percent gains in prior month.

On last Thursday, European Central Bank (ECB) kept interest rates unchanged at 0.5 percent. President Mario Draghi comments ECB could take action to counter low inflation probably in March if the growth remains stagnant. More economic data are needed to be monitored before policy actions can be planned.

The UK manufacturing PMI declined to 56.7 in January from 57.2 in December, below median forecast. UK factory output rose 0.3 percent in December and lesser than forecast. Another report on industrial production, which also includes utilities and mines, climbed 0.4 percent but also lower than expectation.

Bank of England (BOE) held the interest rate unchanged at 0.5 percent on the same day as ECB meeting. Governor Mark Carney also reflects favor to keep interest rates at low levels while his team will will continue to study the data forecast in coming months.

Technical Forecast

USD/JPY might have bottomed out temporary at 100.75 levels and begin to consolidate in coming week. The market is prone to thread sideways from 100.50 – 103.50 ranges as it remains volatile to Dollar strength vs. Japan’s policy. This week, we reckon the trend will only extend out upon breaking beyond the aforementioned range. However, risk management is necessary in case of unexpected news breaking out.

EUR/USD reversed up from 1.3480 bottoms last week and closed at 1.3633 for the weekend. The market is moving into technical correction and we expect the resistance will cap at 1.3700 levels in coming week. The support will emerge at 1.3550 regions in case of quick dip. Take advantage of trading in the target range as mentioned above from 1.3550 – 1.3700 regions.

GBP/USD met support force at 1.6250 areas last week and has been moving into consolidation. This week, we predict the market will continue to thread higher as short-covering occurs. The range is expected to move from 1.6250 – 1.6550 areas while picking long entry on drip could be better strategy. Abandon your long-view if the trend breaks below 1.6250 supports.

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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