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FED Yellen Hints Possibility of Two Rate Hikes

A guest post written by DAR Wong

Currency Market Observations – 13 June 2016

Fundamental Outlook

The U.S. media still debates over recent lower-than-expected payroll that might suppress rate hike possibility. However, FED Yellen surprises market by hinting 2 times tightening may be needed. China reports on slowdown in consumer inflation amid rising trade surplus, propelling a market expectation for new stimulus by market observers. U.K. reports better manufacturing production with growth.

The U.S. weekly claims for jobless benefits show 264,000 in the week ended 4 June and not much different to previous data. Wholesale inventories climbed 0.6 percent in April and higher than revised 0.2 percent in March, indicating slower consumer demand.

Federal Reserve chair Yellen comments on 2 times rate hike may be possible before year-end but has not hinted on specific time frame. However, market analysts reckon the poor payroll in May has shave the high possibility of rate tightening in June.

Crude inventories on weekly report ended 3 June declined 3.2 million barrels in storage compared to contracted 1.4 million barrels in prior week, hence pushing the Crude prices above USD50 per barrel. Nevertheless, we observe that Crude demand has slowed down amid current high prices for past weeks.

China reports trade balance has gained CNY325 billion in May and highest since January. Another separate report on consumer prices gained 2.0 percent on year comparison and lowest since February. Producer prices shrank 2.8 percent on annualized rates, declining at lowest rate in 12 months’ record. Market economist predict new stimulus may be implemented to fuel growth of higher inflation.

Japan’s current account surplus rose JPY1.63 trillion in April but lower than previous month. Final GDP for first quarter grew 0.5 percent as expected in median forecast.

Germany factory orders dropped 2.0 percent in April out of market expectation compared to 2.6 percent rise in previous month. Industrial production rose 0.8 percent after it gained at revised 1.1 percent in March.

Among 19 nations, Eurozone reports 0.6 percent growth in Q1 and highest in past 12 months. Debt issue and economic slowdown remain as focal topics as market investors are waiting for more directives from European Central Bank.

U.K. manufacturing production jumped 2.3 percent in April and better than expectation, after showing 0.1 percent gains in March. Another report on industrial production, including mines and utilities, rose 2.0 percent compared to 0.3 percent gains in March.

Technical Forecast

USD/JPY traded within 106.00 – 108.00 ranges last week without clear direction. This week, we reckon the market may rise in short-covering while Yen weakens again. The trend may attempt 108.50 – 109.00 tops amid FOMC outcome. Abandon your long-view in case of decline beneath 108.00 supports.

EUR/USD failed to climb and close above 1.1400 levels. Market has begun to wind down while giving support to higher Dollar. This week, we predict the market will continue to slide at 1.1100 – 1.1150 regions while resisted at 1.1400 resistances. Trade with caution if the range extends beyond this range.

GBP/USD fell on Friday upon fear of Brexit issue. Market may continue to slide in coming week with target aimed at 1.4000 regions. We foresee a lot of uncertainty in market towards end June with resistance set at 1.4350 areas. Prepare for large range trading in Pound for coming weeks.

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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