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FED Yellen Hints Rate Hike Could be Coming Soon

A guest post written by DAR Wong

Currency Market Observations – 30 May 2016

Fundamental Outlook

The U.S. general economic data show strong signs in housing and job markets, except a weaker GDP growth in Q1. G7 meeting ends with no new agreement made between the finance ministers. Germany maintains in manufacturing growth. U.K. shows flat economic performance.

American new home sales rose 619,000 in April and best in 9-year record, after March showed 513,000 growth. Another report on weekly jobless claims dropped to 268,000 in the week ended 21 May.

Orders for U.S. core durable goods, excluding transport equipment, rose 0.4 percent after it gained revised 0.1 percent in March. The prelim GDP for Q1 rose just 0.8 percent, weakest since first quarter 2015. However, Federal Reserve chair Yellen hints that rate hike could be appropriate over coming months.

Japan’s trade balance records a surplus of JPY430 billion in April and higher than JPY300 billion in previous month. Nationwide core consumer prices fell 0.3 percent in April from a year earlier, the second straight month of declines, pushing BOJ to take action for new stimulus to revive slowdown.

Last week, G7 countries’ finance ministers ended their 2-day meeting in Sendai, Japan. Leaders reached at no agreement on any economic policy issues, including the debate on recent sharp appreciation of the yen. Analysts predict Japan’s Prime Minister Abe might delay tax hike in April 2017 to 2 years later.

German flash manufacturing index reported by Markit progresses at 52.4 in May while the Eurozone matches the estimate at 51.5 reading in manufacturing index as well.

Another report on German ZEW economic sentiment that measures institutional investors’ sentiment surprises the market when May reading is reported at 6.4, almost half of median forecast and lower than 11.2 in April. The other essential monthly data on Ifo business climate that measures business and manufacturing sentiment reports 107.7 and best in past 5 month, after the April data was revised at 106.7.

U.K. public sector net borrowing rose GBP6.6 billion after the data was reported at GBP6.1 billion in March. The second estimate for GDP growth in Q1 rose 0.4 percent and in line with median forecast. Prelim business investment for 3 months ended March slid 0.5 percent against positive expected rise.

Technical Forecast

USD/JPY has been hovering around 110.00 regions in sideways trend. Technically, we see no directional trend in market and might remain in status-quo till mid-June. Range is expected to swing from 109.20 – 110.50 regions in coming week.

EUR/USD traded in small range while prone to mild bearish trend last week. We foresee the trend will recover and trade from 1.1100 – 1.1300 ranges in coming week. However, beware of piercing beneath 1.1060 supports as this might indicate danger of new selling pressure in market.

GBP/USD topped off 1.4700 areas and turned down from EMA200 resistances. This week, we reckon the trend will continue to slide and probably reach 1.4500 bottoms. Range will be prone to bear sentiment as Pound begins initial correction. However, we do not foresee huge range before the country’s referendum before 23 June.

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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