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Federal Reserve Raises 25 Basis Points in Interest

A guest post written by DAR Wong

Currency Market Observations – 19 December 2016

Fundamental Outlook

The U.S. Federal Reserve raises 25 basis points in FED fund interest. Japan indicates confidence among large manufacturers from lower Yen value. Bank of England holds interest rate unchanged in year-end meeting. Inflation increases in U.K. despite slowdown in housing demand.

The U.S. retail sales grew 0.1 percent in November and shrank from 0.6 percent in previous month. Core retail sales, excluding automobiles, also expanded at slower pace 0.2 percent. Producer prices rose 0.4 percent and better than forecast.

Another report on U.S. industrial production, contracted 0.4 percent and down from revised 0.1 percent gains in October. Consumer prices stagnated at 0.2 percent in November and core prices, excluding food and energy, also rose 0.2 percent. Both matched forecast.

The U.S. FED Philadelphia manufacturing index jumps to 21.5 in December, more than 2 times of expectation and highest in this year. Weekly claims for jobless benefits at 254,000 for the week ended 10 December. American building permits rose 1.2 million in November and down from 1.26 million.

The U.S. Crude inventories cut 2.6 million barrels on weekly basis and supported market demand in tandem with coming production cut in January. FOMC meeting announced the rate hike of 25 basis points and expect another 3 more tightening in 2017.

China’s industrial output, including utilities and mines, gained 6.2 percent in November on year basis and signals strong continual growth in this sector. Retail sales also rose 10.8 percent from a year ago. Both data point to inflation growth.

Japan’s core machinery orders rose 4.1 percent in October from a negative data in previous month. Another report on producer prices shrank 2.2 percent in November from a year ago and matched forecast, showing slowdown in manufacturing cost.

Japan’s Tankan index on large manufacturers grew to 10 in final quarter and best in this year. Tankan survey on services stays at 18 on weak sentiment while unchanged from Q3 report.

Industrial production among 19 nations in Eurozone contracted 0.1 percent and improved from minus 0.9 percent in September. Another report on manufacturing index among 19 nations gains at 54.9 in December and better than forecast. Service index in current month rises to 53.1 and slight lower from 53.8 in November.

Eurozone reports the consumer prices rose 0.6 percent in November from a year ago and best record in this year. Core prices, excluding food and energy, rose 0.8 percent as expected. Another report on trade surplus gained EUR19.7 billion in October, lower than forecast and down from EUR24.4 billion revised in September annualized data.

U.K. housing price index reported by Rightmove drops 2.1 percent in December and worst in this year, especially after housing demand has been falling since June. Consumer prices continues to rise in November by gaining 1.2 percent from a year ago, despite slowdown in housing. A separate report on producer prices reflecting raw material cost of manufacturers shrank 1.1 percent surprisingly and almost 3 time worse than forecast.

The average earnings of British citizens on quarterly period ended October rose 2.5 percent and above expectation. Claimants for unemployment benefits at 2400 in November, much lower than expectation and after 13,300 revised claims in October. Unemployment rate maintains at 4.8 percent.

Bank of England holds the bank rates at 0,25 percent and unchanged from last meeting. Bond purchase program will be continued at GBP435 billion to support market recovery.

Technical Forecast

USD/JPY reached 118.66 last week at February high. We expect market trading will be slowed down till year-end and return in January. This week, mixed trading is expected from 116.50 – 118.50 ranges as traders adjust positons for new year.

EUR/USD broke new 13-year low last week at 1.0364 levels. Market is expected to move in tight range amid low trading volume this week from 1.0300 – 1.500 regions. We shall observe the market sentiment in January as it may rebound for recovery or slide further into panic selling.

GBP/USD traded in weak demand last week. Market has been moving into low activity after Bank of England remained policy unchanged on last Thursday. This week, we expect the trend to trade from 1.2300 – 1.2700 regions amid mixed sentiment in case traders adjust their position for new-year book.

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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