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Federal Reserve Hints Rate Hike before December

A guest post written by DAR Wong

Currency Market Observations – 02 November 2015

Fundamental Outlook

The U.S. Federal Reserve hints possible rate hike before December but worries that slow growth may not withstand the higher borrowing cost. Bank of Japan also holds policy unchanged and disappoints market investors amid expectation of new stimulus. U.K. records slide in mortgage approvals and lower growth in Q3.

The U.S. new home sales expanded 468,000 units and lower from revised 529,000 in previous month. Pending home sales dropped 2.3 percent and worse than 1.4 percent decline in August.

American durable goods, excluding transportation items, slid 0.4 percent in September after prior month dropped 0.2 percent, making second straight decline on monthly basis. The Conference Board’s consumer confidence grew at 97.6 but much lower from 102.6 in September.

The U.S. claims for jobless benefits stayed at 260,000 in the week ended 24 October and almost steady from past weeks. Initial GDP expectation for Q3 ended September grew at 1.5 percent and dropped from 3.9 percent expansion in Q2, from slowdown in housing and industrial output.

The employment cost index rose 0.6 percent in Q3 after it expanded at 0.2 percent in 3 months ended June. Data is used to measure the cost of labor that is indirectly passing the cost to consumers for stimulating inflation.

In FOMC meeting held on last week, chair Janet Yellen hinted of possible rate hike before December but will keep it near to zero if possible. Policymakers are concerned of global slowdown and weak market employment that might not be able to absorb rate increment.

Tokyo core consumer prices slid 0.2 percent in October from a year ago, in line with forecast. National consumer prices was down 0.1 percent on yearly basis and remained unchanged from September. Another report on household spending showed 0.4 percent annualized decline in September after it was 2.9 percent growth in prior month.

Bank of Japan remains policy unchanged but lower the forecast for the real economic growth to 1.2 percent for the current fiscal year ending in March. Central Bank Governor Kuroda reiterates that policymakers will not hesitate to take necessary action if needed to support recovery. Despite this, market investors are still expecting new stimulus to be implemented.

German prelim reading for consumer prices remained at par growth in October, better than minus 0.2 percent contraction in previous month.

Flash estimate for consumer prices in Eurozone stagnated at par growth while struggled for positive expansion. Core annual data grew 1.0 percent from a year ago.

The U.K. BBA mortgage approvals drops to 44,500 from revised 46,600 in August. Preliminary GDP shows 0.5 percent gains through September, lower than 0.7 percent expansion in the previous quarter ended June.

Technical Forecast

USD/JPY is now floating above the EMA200 line chartered across 119.50 levels. Market is trading in tight range around 121.00 and still subject to uncertainty. This week, we reckon the trend will move from 119.50 – 121.50 regions whileextending beyond the constriction band will head for new direction.

EUR/USD traded in sideways last week and settled at 1.1003 for weekend. This week, we foresee the trend may retrace slightly upwards while prone to whipsaw. Resistance lies at 1.1100 areas in case of pull up. Strong support is identified at 1.0900 for time being but driving below here will signal new bearish sentiment arising in market.

GBP/USD traded up on retracement last week though we expect the main trend to be bearish in November. This week, we foresee resistance will lie at 1.5500 – 1.5520 regions while taking another plunge is possible. Immediate support will emerge at 1.5200 levels in case of drawdown. Risk control is advised in-lieu of this extension.

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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