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G20 Meets to Discuss Cutting Deficits

A guest post written by DAR Wong

Currency Market Observations – 18 February 2013

Fundamental Outlook

The US is facing debt ceiling soon but Congress has not mentioned the negotiation of another budget solution. Japan’s Gross Domestic Product (GDP) improved in last quarter by contracting at much smaller pace after the stimulus of Yen devaluation began. G20 nations meet in Toronto to discuss new deadline of cutting deficits after the preset 3-year target made in 2010 has not been fulfilled this month.

The US retail sales rose in January by gaining 0.1 percent that matched the median forecast. Jobless claims dropped 27,000 to 341,000 in the week ended 9 February, in better job markets. Before weekend, Federal Reserve Chairman Ben S. Bernanke said the US economy is far from operating at full strength and reiterated his commitment to record easing.

Democrats and Republicans in the US Congress have not begun negotiation for plan of cutting USD1.2 trillion when deadline will be coming on near end February. According to sources, US leaders may advance a 6-month funding measure about USD974 Billion on 25 February that will finance the government through 30 September.

Another report showed US government posted a January budget surplus for the first time in 5 years at USD2.88 Billion, compared with a USD27.4 Billion deficit in January 2012.

Japan’s GDP contracted an annualized 0.4 percent in the three months through December, following a revised 3.8 percent contraction in the previous quarter. Consumer spending rose 0.4 percent from the previous quarter. On the other hand, Economy Minister Akira Amari said the government’s JPY10.3 Trillion (USD111 Billion) stimulus package announced on 11 January would begin in April instead of starting in January 2013.

Last week, Euro finance chiefs met in Brussels to discuss aid to Cyprus and Greece as a tightening election contest in Italy and corruption allegations in Spain threaten to reignite the region’s debt crisis. GDP in the euro area fell 0.6 percent in the fourth quarter from the previous three months, the most declines since Q1 2009.

After the G20 leaders committed at a Toronto summit in 2010 to halve budget deficits by this year, most advanced nations are now facing failure on the preset target. Hence, G20 will discuss adopting a new deadline for deficit goals and may set 2016 as the new target date.

UK retail sales including fuel fell 0.6 percent in January after they dropped a revised 0.3 percent in prior month. GDP shrank 0.3 percent in the last quarter of 2012 and is facing the threat of an unprecedented triple-dip recession. Pound fell in sharpest weekly decline since June last year.

Technical Forecast

USD/JPY has slowed down in surge and consolidated last week from 92.00 – 94.50 ranges. This week, we reckon the market will continue to climb higher once it breaks above 94.50 resistances while expecting to reach 95.00 – 95.50 targets. Abandon your long-view if the trend sinks below 92.00 levels.

EUR/USD has been moving in weak sentiment as we predicted last week. This week, we expect the trend may touch down at 1.3250 areas before bouncing up for recovery. Topside resistance emerges at 1.3500 regions which will cap the upcoming trend in case technical recovery begins.

GBP/USD flushes down in weakness after growth contracted in last quarter. The market is expected to digest the bears by making mall consolidation at 1.5650 – 1.5680 areas this week. The continual downtrend could reach 1.5200 levels should Pound recede further against Dollar.

Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

Wong is the founder and Principal Consultant of and holds a professional
qualification in NASD series 3 and 5 approved by National Futures Association (USA).

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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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