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FED Yellen Defends that Economy is Not a Bubble

A guest post written by DAR Wong

Currency Market Observations – 11 April 2016

Fundamental Outlook

The U.S. services index rises to 5-month record while Yellen comments recovering economy in not bubble. Japanese Yen gains against Dollar and obstruct exports while Aso warns of intervention. European Central Bank reassures of potential recovery out of negative rates and increases stimulus from April.

The U.S. trade deficits widened to USD47.1 billion in February after the previous month revised at USD45.9 billion deficits. Another report from the Institute of Supply Management says services index continues to rise to 54.5 in March, highest in past 5–month record.

American initial claims for state unemployment benefits declined 9,000 to a seasonally adjusted 267,000 for the week ended April 2. Crude inventories shrank 4.9 million barrels against positive forecast.

Federal Reserve chair Yellen defends that U.S. economy is in recovery progress and not a forming bubble. Policymakers say there will likely be no rate hike in April.

Japan’s trade surplus rose JPY1.73 trillion in February and highest since March 2015. Another consumer confidence based on household survey shows rise to 41.7 in March and higher than expectation.

Japanese Finance Minister Taro Aso says the government is ready to act against the currency’s rise. Yen has appreciated against Dollar as USD/JPY rate declined below 110.0 benchmarks last week.

German factory orders shrank 1.2 percent in February after it rose 0.5 percent gains in prior month. Another report on final services index rose to 55.1 in March and close to forecast.

European Central Bank releases minutes that says negative rates are beneficial for banks and gives room for adding more stimulus if needed. Central bank also extends its monthly asset purchases to EUR80 billion (USD87 billion) from April onwards. In addition, the bank will launch a new series of four targeted longer-term refinancing operations (TLTROs) with maturities of 4 years starting in June.

Markit in London reports the construction index expanded to 54.2 in March and kept up with pace of recovery. Another separate report on services index gained 53.7 in March and in line with forecast. Manufacturing slid at fastest in past 3 years by 1.1 percent in February from 0.5 percent revised gains in January.

Technical Forecast

USD/JPY dropped below 108.00 levels and bounced last week. We reckon the market has reached support for time being and might be trading in sideways consolidation from 107.50 – 110.50 regions. However, beware of the trend piercing beneath 107.20 lest panic selling will initiate in market.

EUR/USD is meeting resistance at 1.1400 – 1.1450 regions and slows down in ascension. This week, we predict the trend will make correction and trade sideways from 1.1200 – 1.1450 ranges. Breaking above 1.1450 resistances might lead higher to 1.1600 targets.

GBP/USD slid last week but was countered at 1.4000 – 1.4050 support areas. This week, we foresee the trend will make mild recovery and trade sideways from 1.4000 – 1.4250 ranges. Overall trend may be bearish but not likely to plunge so quickly yet. Traders are still observing for Brexit referendum to be polled in coming June before the direction of Pound can be affirmed.

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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